Vicarious Liability...Why You Must Understand this Concept before You Ever Consider Selling Your Business!
Vicarious Liability could turn out to be a seller's worst nightmare!
The legal concept on which vicarious liability is based is simple. If you are the principal in a tranaction in which you employ agents or subagents, you are legally responsible for all of their acts. (That is right ALL of their acts.) This includes both misdeeds and misstatements of an agent or subagent on which a buyer may have relied in finalizing a tranaction.
The sale of a business is a complex and emotional process. It is difficult enough to complete without incurring significant unwanted liability. Unfortunately this can happen if you or your advisors or their subordinates say or release something to the buyer which ultimately is proven to be inaccurate. Sometimes the simpliest thing can come back around the corner a year of two later and cause significant financial and emotional hardship for the seller.
To protect yourself in any sale of your business, you must have experienced, knowledgeable advisors. In addition, these experienced professionals must be the only people who actually work on the deal with the buyers and the buyers' representatives. (Sometimes hiring the biggest and "best" firm is not the best idea if junior members provide the services and do most of the work on your tranaction.)
In addition, you must carefully listen to your tranaction advisor when he/she coaches you on "how to buy time to carefully respond in all situations"! Getting a deal done is only part of the job...limiting liability and precluding any future problems is critical to the ultimate success of any business sale. Experienced sellers and experienced advisors spend a lot of time and money preparing for a transaction and carefully release information in written form...ONLY when the time is right. (Use of Virtual Data Services now help track the release and review of confidential information in a highly professional manner.) Anything less than this level of care can expose you, the seller, to unexpected future problems if the buyer or his "trusted" legal advisors chose to take a shot at you to solve a probem that they have created.