Buyers of privately-held companies require that sellers appoint a representative of the former shareholders to handle claims for alleged breaches of representations or warranties, working capital adjustments, calculations of earnouts and similar issues. The lead investor in private equity transactions may elect to assume the role because they are familiar with the working capital calculations, and, as often their money is most at risk, they may want to maintain control.
The work can be tedious and serving as the representative can subject that person or fund to legal and financial risks and distractions. The recent ruling in Mercury Systems v. Shareholder Representative Services LLC demonstrates the risks associated with acting as your own shareholder representative.
This paper explores how to mitigate these risks, and how private equity firms can more efficiently manage the post-closing process while retaining complete control. Topics:
• Personal risks and obligations of being a fiduciary
• Litigation risks
• Forming a new company is not a solution
• Retaining control without serving as representative