Meaning
Contractual obligations continue to bind the parties for a set duration after a transaction has reached its conclusion. These post closing covenants govern activities such as competition and the retention of former staff members. They ensure that the seller does not immediately undermine the value of the business they just sold.
The duties expire once the time limit specified in the agreement has passed.
Conduct Restriction
Non-competition and non-solicitation rules are the most restrictive elements for a founder who wants to start a new project. Post closing covenants prevent the former owner from hiring away essential staff or competing in the same market for several years. This restriction limits the professional mobility of the individual in exchange for the liquidity provided by the sale.
It also protects the investment of the buyer by ensuring the seller does not immediately launch a rival business.
Administrative Burden
Sellers often remain liable for providing financial data and tax information related to the period before the sale. This duty requires the founder to keep records accessible and to respond to inquiries from the new owner. The time spent on these tasks is rarely compensated and adds to the workload of the transition.
Enforcement Period
Timeframes for these obligations range from months to years. Ongoing monitoring of professional activity prevents the accidental violation of these persistent legal duties.
