I Just Bought a Business and Discovered Problems — What to Do Next
I Just Bought a Business and Discovered Problems — What to Do Next
You closed on a business acquisition. The seller shook your hand, took the money, and walked away. Now — days, weeks, or months later — you are discovering things that don’t add up. The financials were exaggerated. There are liabilities you weren’t told about. Key contracts are missing or expired. The seller misrepresented the condition of the business. What happens next depends on what was in your purchase agreement, how quickly you act, and whether you have an experienced business disputes lawyer in your corner.
Start With the Purchase Agreement
The asset purchase agreement or stock purchase agreement is the foundation of any post-closing dispute. The representations and warranties section is particularly important — it contains the seller’s formal promises about the condition of the business at the time of sale. If those representations turn out to be false, you may have a claim for breach of representations and warranties.
Read the agreement carefully with a lawyer. Specifically look for: what representations the seller made about the financials, contracts, liabilities, employees, and legal compliance; what the indemnification provisions say — who is responsible for what, and for how long; any survival periods — how long after closing a representation and warranty claim can be brought; any caps or baskets that limit the seller’s indemnification exposure; and any dispute resolution provisions — does the agreement require arbitration or permit litigation?
Time Limits Matter — Act Quickly
Most purchase agreements contain survival periods — defined windows of time after closing during which the buyer can bring a claim for breach of representations and warranties. These periods are often 12 to 24 months for general representations and longer for fundamental representations (title, authority) and specific categories like taxes and environmental matters. If your survival period expires before you bring your claim, you may lose your contractual remedy entirely.
New York and New Jersey also have general statutes of limitations for fraud and contract claims that set outer time limits independently of the purchase agreement. But the contractual survival period is often shorter than the statutory limitations period — which means the agreement’s deadline, not the statute of limitations, is the binding constraint. Do not assume you have years to act. Review the agreement and call a lawyer as soon as you discover a problem.
What Claims May Be Available
Breach of representations and warranties. If the seller made specific representations about the business that turned out to be false — overstated revenue, undisclosed liabilities, misrepresented contract status — this is typically the primary claim. The indemnification provisions of the agreement specify the remedy and any limitations on recovery.
Fraudulent inducement. If the seller knowingly made false representations to induce you to close the transaction, you may have a fraud claim in addition to a contract claim. Fraud claims can carry different — sometimes longer — statutes of limitations and may allow for punitive damages that contract claims do not.
Breach of contract. If the seller had specific obligations under the purchase agreement — to provide accurate financial statements, to maintain the business in the ordinary course between signing and closing, to notify you of material changes — and failed to fulfill those obligations, you may have a breach of contract claim.
Escrow claims. If the agreement included a post-closing escrow — a holdback of a portion of the purchase price to cover indemnification claims — this may be the most direct source of recovery. Review the escrow agreement and its claim procedures carefully.
What to Do Right Now
Document everything. Gather all evidence of the problem — financial records that contradict the seller’s representations, contracts that were not disclosed, correspondence revealing what the seller knew before closing. Preserve everything and create a clear written record of when you discovered each issue.
Do not contact the seller directly. Communications with the seller at this stage can affect your legal position. Let a lawyer handle the communication — both to protect your rights and to open the door to negotiated resolution before litigation becomes necessary.
Call a lawyer immediately. Post-closing business disputes are time-sensitive. An experienced business transaction lawyer can review the purchase agreement, assess your claims, identify the applicable deadlines, and advise on the best strategy — whether that is a demand letter, a negotiated settlement, an escrow claim, or litigation.
If you have discovered problems after buying a business in New Jersey or New York, contact Russo Law LLC immediately for a consultation.
Frequently Asked Questions — Discovered Problems After Buying a Business
Can I sue the seller if I discover the business was misrepresented?
Potentially yes — but it depends on what representations the seller made in the purchase agreement, what the indemnification provisions say, whether the survival period for your claim has expired, and whether you can prove the seller’s representations were false and caused you damages. An experienced business disputes lawyer can assess your specific situation and advise on your options.
What is a representation and warranty claim?
Representations and warranties are statements of fact made by the seller about the business in the purchase agreement — covering financials, contracts, employees, litigation history, taxes, and other matters. If those statements turn out to be false, the buyer may have a claim against the seller under the indemnification provisions of the agreement. The scope of recoverable damages and the time limits for bringing a claim are typically defined in the agreement itself.
How long do I have to bring a post-closing claim against a seller?
The timeline depends on your purchase agreement’s survival period — which is often 12 to 24 months for general representations. This is frequently shorter than the general statute of limitations for contract or fraud claims under New York or New Jersey law. Review your agreement immediately — the contractual deadline may be the binding constraint, not the statutory one.
Disclaimer
The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. The legal and business issues discussed in this post vary depending on the specific facts and circumstances of each situation. This corporate lawyer blog post is for informational purposes only and does not constitute legal advice. It is not an offer for Russo Law LLC to represent any party, nor does it create an attorney-client relationship. No action or inaction should be taken based on the information provided without seeking professional legal counsel. This post is intended for businesses in New York and New Jersey. It may not reflect laws in other jurisdictions.
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