Managing Risk Between Signing and Closing in Company Sales

15.6.2026 | ARROWS law firm

The period between signing the agreement and closing the transaction is a high-risk phase of a company sale. The seller remains responsible for the operation of the business, but its decision-making is limited by the agreement. This article explains how to proceed during this phase, how to protect the company’s value, and how to prevent a reduction in the purchase price.

In the image, we see a lawyer providing advice on the period between the execution of the agreement and the closing of the transaction.

Key takeaways
What the interim period is and why it matters
Interim covenants: guardrails for the seller’s conduct
Tools to protect the purchase price during the interim period
Practical seller conduct during the interim period
Final summary

Key takeaways

The period between signing and closing is not passive waiting, as the seller remains responsible for the operation of the business.

The business must be operated strictly in the ordinary course of business and in line with past practice.

Completion of the transaction is also typically conditional upon fulfilment of conditions precedent, such as clearance from the Czech competition authority.

To protect its investment, the buyer uses specific contractual mechanisms and purchase price adjustment arrangements.

For a successful sale, it is essential to actively manage this period and set clear communication rules.

What the interim period is and why it matters

In transaction practice, the term “interim period” refers to the time between signing the transaction documentation (signing) and the transfer of ownership title to the shares or stock, together with settlement of the purchase price (closing). In the classic model with separate signing and closing, the parties to the transaction agreement (SPA) undertake to use their best efforts to satisfy the conditions precedent.

From the perspective of the Czech Civil Code, this interim period is not specifically codified. It is based on the principle of freedom of contract, with the parties’ rights and obligations primarily governed by the transaction agreement.

Legally, the seller remains the owner of the interest until closing and bears full responsibility for the company’s operation. At the same time, however, it is contractually bound to protect the economic substance of the business for the buyer. For the success of the transaction, this interim period is critical from a risk allocation perspective. During this time, the buyer finalises its acquisition financing and monitors the stability of the business’s performance.

During this time, the buyer monitors the stability of the business’s performance and verifies that no material adverse fluctuations occur. The seller, in turn, seeks to ensure that the business operates without operational disruptions and to eliminate pretexts for a price reduction.

Signing and closing in Czech transaction practice

In the Czech legal environment, the transfer of ownership title differs depending on the form of the company being sold. In a limited liability company (s.r.o.), the ownership interest is transferred upon the effectiveness of the share transfer agreement vis-à-vis the company, whereas in a joint-stock company (a.s.) an endorsement and delivery of certificated shares is required, or registration in the Central Securities Depository.

Since these steps are only carried out at closing, this period is a time of suspended effectiveness of the transfer arrangements. Since the transfer steps are only carried out at closing, this period is a time of suspended effectiveness of the transfer arrangements. Typical conditions precedent that must be satisfied include, for example, competition clearance.

Competition clearance primarily includes approval of the concentration by the Office for the Protection of Competition (Úřad pro ochranu hospodářské soutěže). Screening of foreign investments may be relevant if the buyer comes from a country outside the European Union and the target company operates in a sensitive sector. This screening is carried out by the Ministry of Industry and Trade.

Third-party consents are often required from financing banks or landlords of key real estate. As part of corporate approvals, consent of the general meeting of the seller or the buyer may be required. Such consent is necessary if required by the articles of association or by law.

If the parties attempted to carry out a de facto takeover of control of the company before obtaining the required approval, they would be exposed to the risk of significant penalties for premature implementation of the concentration (gun jumping).

Interim covenants: guardrails for the seller’s conduct

The main contractual tool by which the buyer ensures a stable condition of the business is interim covenants. These covenants impose on the seller an obligation to ensure that the company acts in accordance with the agreed rules and does not carry out extraordinary actions without consent.

When complying with these covenants, it is necessary to take into account the duty of due managerial care under Czech law. Members of the statutory body are required to act with the necessary loyalty and care directly towards the company, not towards the buyer. This duty is owed to the target company itself.

If strict compliance with the covenants would lead to the company’s insolvency, the members of the statutory body must give priority to their duty of due managerial care. The statutory body cannot be released from liability for damages by referring to contractual arrangements between shareholders.

Ordinary course covenant: what “ordinary course” means

A core pillar of interim restrictions is the covenant to operate the business in the ordinary course of business and in line with past practice. “Ordinary course” means day-to-day activity consistent with the scope of business and the approved budget.

Departures from the ordinary course include entering into contracts where the value of performance exceeds an agreed financial threshold. Departures from the ordinary course include entering into contracts where the value of performance exceeds an agreed financial threshold. This also applies to contracts with unusual terms.

This also includes agreeing contracts with unusual terms, granting non-standard discounts or gifts. Changes to accounting methods and initiating investments outside the budget are also considered breaches of the ordinary course. Do not take these steps without the buyer’s consent. To avoid disputes, it is recommended to attach a detailed annual budget and business plan to the transaction agreement.

Scope of the buyer’s consent and the process for granting it

For actions outside the ordinary course of business, the buyer reserves, in the transaction agreement, the right to require prior written consent. Prohibited actions typically cover a range of areas from corporate changes to HR measures.

Prohibited actions typically include corporate changes to the articles of association, bylaws, or registered capital. This also includes the issuance of bonds. They also cover HR measures such as appointing members of corporate bodies, increasing salaries, or paying extraordinary bonuses.

The restrictions also apply to taking on new loans, providing security, or selling and encumbering real estate. These steps require consent. The key to a smooth process is a precisely set process for requesting and granting consent.

The agreement should precisely specify the communication channels and set a reasonable time limit for the buyer’s response. This prevents unnecessary delays. It is advisable to agree on a deemed consent mechanism in case the buyer does not respond to the request within the specified time limit.

Financial and HR restrictions during the interim period

In the area of financial management, the buyer’s primary interest is to prevent any cash outflow from the target company for the benefit of the seller. For this reason, profit distributions, dividend payments, or non-standard intra-group transactions are prohibited.

From an HR perspective, the main objective is to maintain the integrity of the workforce and the stability of key employees. From an HR perspective, the main objective is to maintain the integrity of the workforce and the stability of key employees. They represent a substantial part of the company’s value.

From the perspective of the Czech Labour Code, it is necessary to ensure that all steps affecting employees comply with the regulations. If collective redundancies were to occur during the interim period, the procedure must be coordinated with the buyer, as this may affect the company’s operational capacity.

Purchase price protection tools during the interim period

The purchase price agreed upon at signing is calculated based on the company’s financial situation as of a certain date. To preserve this value, specific contractual mechanisms are used.

The importance of material adverse change clauses

A material adverse change (MAC) clause gives the buyer the right to refuse to complete the transaction if, during the interim period, an event occurs that fundamentally deteriorates the company’s financial condition.

In the Czech legal environment, the contracting parties typically deviate from statutory provisions. In the Czech legal environment, the contracting parties typically deviate from the statutory provisions on change of circumstances and regulate this regime contractually. This helps prevent disputes.

To prevent speculative misuse of this clause by the buyer, the parameters must be set very precisely. It is recommended to define the materiality of the change by a specific value, for example a decrease in revenues by a certain percentage. This gives both parties certainty.

The change should be long-term in nature, not merely a temporary operational fluctuation that can be quickly remedied. General economic changes, armed conflicts, or natural disasters should be excluded from liability. These external influences cannot be controlled.

Representations, warranties, and a bring-down certificate

The seller’s representations and warranties are provisions by which the legal and factual status of the company is guaranteed. These representations are assessed under the regime of a contractual quality warranty under Czech law. The buyer typically requires that these representations be true both as of the signing date and as of the transaction closing date.

The buyer typically requires that these representations be true both as of the signing date and as of the transaction closing date. This ensures continuity of warranties. A so-called disclosure schedule serves to factually limit the seller’s liability, where specific risks are truthfully described.

The possibility of updating this annex during the interim period is often subject to negotiation, with a common compromise being a right to withdraw if limits are exceeded. This helps allocate risk. At the end of the interim period, the seller submits a bring-down certificate confirming that the warranties remain true as of the closing date as well.

Locked-box and closing accounts mechanisms

The method of determining the final purchase price fundamentally affects the allocation of risks during the interim period. In practice, two basic financial models are used. Under the locked-box mechanism, the purchase price is fixed based on historical financial statements.

Under the locked-box mechanism, the purchase price is fixed based on historical financial statements. During the interim period, the seller is then obliged to protect the value against unauthorized leakage of funds.

Under the closing accounts mechanism, the final price is calculated retrospectively only after closing, based on special-purpose financial statements. The preliminary price is then adjusted according to the actual level of debt and working capital. In this model, the seller has a strong incentive to maintain an optimal level of working capital until the last day. Any anomaly will be reflected in the price.

Securing obligations through escrow and holdback

To secure the buyer’s future claims, it is common to retain part of the purchase price for several months after closing.

With a holdback, the buyer unilaterally keeps the agreed portion of the price in its own account. With a holdback, the buyer unilaterally keeps the agreed portion of the price in its own account. However, this approach is risky for the seller.

A safer option is contractual custody, i.e., escrow. In Czech practice, attorney, notarial, or bank escrow is most commonly used. When arranging escrow, it is crucial to precisely define the conditions for releasing the funds and the procedure in the event of a dispute. This minimizes future risks.

Practical conduct of the seller during the interim period

Flawless management of this period requires the seller and management to switch to an adjusted governance regime. Statutory bodies must balance their statutory duties with compliance with contractual limits.

Company management and internal governance during the interim period

Immediately after signing the agreement, the seller should implement several key steps to ensure compliance with the transaction documentation. It is recommended to establish a small transaction committee that will be responsible for approving operational steps and communication.

It is recommended to establish a small transaction committee that will be responsible for approving operational steps and communication. This will simplify the entire process. Other managers must be demonstrably familiarized with the limits contained in the interim covenants. Any significant decision above the set financial threshold should undergo internal review before sending the request to the buyer. This helps prevent mistakes.

Communication with the buyer and the approval process

Communication with the buyer must be exclusively in writing and formalized. If consent is required for an action outside the ordinary course of business, the request should include detailed justification. The request must expressly refer to the relevant provision of the agreement and state the time limit for response. The request must expressly refer to the relevant provision of the agreement and state the time limit for response. Oral consents are legally irrelevant.

Stabilization of key employees

The period of uncertainty between signing and completion of the transaction naturally creates anxiety among key employees. There is a risk that important people will leave the company. To prevent these situations, retention programmes are used, guaranteeing employees an extraordinary bonus for staying.

To prevent these situations, retention programmes are used, guaranteeing employees an extraordinary bonus for remaining with the company. These programmes stabilise the team. A transparent communication plan and timely information about the transaction are also important, as soon as contractual confidentiality obligations allow.

Commercial contracts, disputes and compliance

During the interim period, compliance processes must not be weakened. If the company faces administrative proceedings or receives a pre-action demand letter, it must act cautiously. The seller is obliged to inform the buyer of such facts without undue delay and coordinate the next steps with them.

The seller is obliged to inform the buyer of such facts without undue delay and coordinate further legal steps with them. This helps maintain trust.

Potential issues in the interim period	Legal solutions and the role of ARROWS (office@arws.cz)
Breach of interim covenants : Unintentional exceeding of financial limits or entering into an unauthorised contract without consent.	ARROWS, a Prague-based law firm, can help set up clear decision-making processes and prepare internal guidelines for management. Ongoing legal assessment of borderline operations for compliance with the transaction documentation.
Dispute over satisfaction of the MAC/MAE clause : The buyer attempts to withdraw from the transaction citing a deterioration in market performance.	We will provide a legal analysis of whether both quantitative and qualitative criteria are met and represent you in negotiations. We will eliminate speculative claims by the other party.
Errors in purchase price settlement : Disputes over the methodology for preparing closing accounts and calculating net working capital.	We will propose precise wording of financial definitions in the agreement and represent you in the process of resolving any objections. We coordinate the approach with financial advisers.
Risk of claims against the escrow arrangement : The buyer threatens to block the release of funds from escrow due to alleged defects.	We will prepare a balanced escrow agreement with a protection mechanism against unjustified blocking of funds. We will provide legal defence against alleged breaches of warranties.
Delays in regulatory proceedings : Delayed approvals by authorities as part of investment screening.	We will provide comprehensive legal representation in proceedings before the Czech Competition Authority (ÚOHS) and ministries. We will monitor contractual deadlines and negotiate extensions.

Typical mistakes, disputes and how to prevent them

Experience from transactional practice shows that most disputes during the interim period do not arise from bad faith, but from underestimating contractual details and insufficient communication.

Breach of covenants and disputes over ordinary course of business

A common example is a situation where, during the interim period, the company’s director signs an extension of a lease agreement with an increase in rent because they consider it operationally necessary. The buyer then identifies this as a breach of the agreement and refuses to proceed with settlement until they receive a discount.

The buyer then identifies this as a breach of the agreement and refuses to proceed with settlement until they receive a discount on the purchase price. This may jeopardise the entire transaction. Prevention lies in the strict implementation of an internal approval process and temporary limitation of directors’ authority in the company’s internal regulations.

Misuse of the material adverse change clause

If the overall economic situation worsens during the interim period, the buyer may attempt to use the adverse change clause as a pretext to withdraw from the agreement.

To prevent this, the seller should never accept subjective definitions of an adverse change. It is necessary to insist on an exhaustive list of objective indicators with precise financial thresholds and clearly defined carve-outs. This protects the seller.

Financing delays and regulatory obstacles

If the transaction is subject to approval by the competition authority, the proceedings may drag on for several months. If the agreement does not include a sufficient buffer, the agreement may lapse.

The solution is to set a realistic long-stop date for completion of the transaction with a sufficient buffer. The solution is to set a realistic long-stop date for completion of the transaction with a sufficient buffer and agree on an automatic extension mechanism. This prevents the agreement from lapsing.

Final summary

The interim period is the phase of the transaction in which the successful completion of the entire company sale process is decided. The seller must carefully balance the statutory duties of the statutory body under Czech law with contractual restrictions. Successful management requires precise transaction documentation, strict internal governance settings within the company, and cooperation with advisers.

Successful management requires precise transaction documentation, strict internal governance settings within the company, and ongoing cooperation with transaction advisers. This ensures a smooth process. ARROWS has a team of specialists in transactions and corporate law.

ARROWS has a team of transaction specialists and provides comprehensive legal representation in contract negotiations as well as in the subsequent management of the entire process. We will help you minimise the risks of the sale.

FAQ

1. Can we completely omit the interim period when selling a company and complete signing and settlement on the same day?
For transactions that do not require approval by the competition authority or foreign investment screening, a same-day signing and transfer model is fully feasible. To assess a suitable transaction structure, you can contact us at office@arws.cz.

2. How do I know whether a specific step in the company requires the buyer’s consent?
The decisive factor is always the wording of the agreement and the list of prohibited actions. Any step that deviates from the approved financial budget or established practice requires written consent. Our attorneys in Prague can help you assess such an action at office@arws.cz.

3. What should I do if the buyer claims that a material adverse change has occurred and threatens to withdraw?
It is essential to carry out an immediate legal analysis of whether the event meets the contractual definition and exceeds the agreed thresholds. To evaluate the situation and prepare a negotiation strategy, contact us at office@arws.cz.

4. How can I, as the seller, protect myself against unforeseen claims by the buyer after settlement?
The basic protection is precise setting of contractual limitations of liability in the transaction documentation, in particular agreeing sufficiently high financial thresholds and shortening time limits. We can help you set these limits at office@arws.cz.

5. What is the purpose of a bring-down certificate, and do I always have to sign it as the seller?
By this document, as of the closing date you confirm that your representations and warranties are still true and correct. If any changes occurred in the interim, you must disclose them in the certificate as qualifications. To have the certificate reviewed before signing, contact us at office@arws.cz.

6. When does it make sense to involve ARROWS, a Prague-based law firm, in the sale process?
We recommend involving legal counsel already at the stage of preparing the initial arrangement (Letter of Intent). Although non-binding terms are agreed at this stage, the key parameters of the transaction are defined. For a non-binding consultation, contact us at office@arws.cz.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.

Read also: