When you’re knee-deep in an acquisition deal, it can feel like the smallest detail carries enormous consequences. Welcome to the world of disclosure schedules—an essential piece of any M&A transaction that can either save your startup from hidden liabilities or open the door to post-deal headaches. In the following guide, we’ll walk you through the who, what, and why of disclosure schedules, all framed for founders gearing up for an exit or strategic acquisition event. Think of it as your insider’s manual to ensuring you reveal what you need while protecting your best interests.
1. Introduction: Why Disclosure Schedules Matter
At its core, every M&A deal is an exchange of value. You, as the founder or seller, want fair compensation for your company’s achievements and potential. The buyer aims to ensure there are no unpleasant surprises, like hidden lawsuits or overlooked IP licenses. Disclosure schedules are the artifact where all the relevant data about your company—contracts, liabilities, IP holdings, ongoing litigation—gets formally spelled out. In essence, they are a hyper-detailed snapshot of your startup’s condition at the moment you sign the definitive agreement.
In any acquisition, your buyer will ask: “What am I really purchasing?” Disclosure schedules answer that question. When handled smartly, they build trust, reduce last-minute renegotiations, and keep the acquisition timeline on track. Mishandle them, and you risk unexpected indemnification claims or even the collapse of your deal. Let’s dive in with that same sense of “founder hustle” you’d bring to pitching a top-tier VC.
2. Purpose of Disclosure Schedules
Disclosure schedules serve two basic yet critical functions:
- They share essential details and data about the target startup (affirmative disclosure).
- They carve out exceptions to the reps and warranties set forth in the main purchase or merger agreement (negative disclosure).
2.1 From the Seller’s Perspective
If you’re the seller, disclosure schedules are a chance to say, “Yes, we can stand behind our major claims, but here are a few quirks or issues you should know about.” These might be upcoming product liability lawsuits, an unsettled IP dispute, or an outstanding contract that might not renew. By placing them in the disclosure schedules, you effectively protect yourself—post-closing, the buyer typically can’t claim it was blindsided if it’s all right there in the documentation.
For entrepreneurs, it’s a smart move to overshare. We’re often tempted to keep the highlights in the spotlight, but the buyer is paying for your entire business, warts and all. If you don’t disclose a warty issue, it could morph into a lawsuit that you might be forced to handle even after pocketing the acquisition proceeds. Better to be comprehensive now than pay for it later.
2.2 From the Buyer’s Perspective
Meanwhile, the buyer sees these schedules as a window into your actual risk profile. Even if your startup’s story is compelling, they’ll rely on the schedules to confirm there are no existential bombs waiting to detonate (e.g. undisclosed big customer cancellations, expired IP protection, or crippling NDAs). They may revise the purchase price, request special indemnities, or even walk away if the disclosures paint too grim a picture.
In short, the more robust your disclosures, the more confident the buyer can be in closing. Being transparent fosters trust, which can help you preserve your relationship if the buyer keeps you on as an executive post-deal, or invests more resources in your big vision.
3. Public vs. Private Deals
While most early-stage entrepreneurs are more likely to do private deals, public M&A deals also use disclosure schedules. The difference is that public companies typically have a lot of information already out in the open—SEC filings, earnings calls, and so forth. For private acquisitions, the buyer lacks that publicly accessible detail and often leans heavily on your disclosure schedules. This can make private deals more time-consuming on the disclosure front, because the buyer can’t just pull up a 10-K to see your finances and liabilities.
Another big difference: public acquisitions usually don’t involve post-closing indemnification. The buyer banks on an established market value and the standard disclaimers of risk, relying less on micro-level disclosures. Private deals, on the other hand, often involve indemnity clauses, making it even more crucial for you to lay everything on the table so you don’t get blindsided post-close.
4. Drafting the Disclosure Schedules
Drafting or coordinating disclosure schedules is no small feat. You’ll juggle data from across your entire organization: HR, Legal, Finance, Product, and even third-party specialists. Let’s break down the process into practical steps:
4.1 Identify Your Drafting Team
Usually, a junior associate (or in a startup setting, your general counsel or outside lawyer) takes point on consolidating the info into a coherent set of schedules. You’ll also want a business-side champion—someone who knows the nuts and bolts of your startup’s operations. These two folks can corral everything from vendor contracts to employee benefits to intellectual property lists. Keep them aligned daily to avoid slip-ups.
4.2 Communicate Constantly
Sure, it’s time-consuming, but the biggest mistakes happen when teams aren’t on the same page. If you’ve adjusted your materiality threshold in the main purchase agreement, you may need to re-check which lawsuits or claims are “material” for your schedule. If your CFO discovered an unbooked liability mid-deal, that must be added. Constant communication equals fewer last-minute crises.
4.3 Include the Right Information
Err on the side of detail. For instance, listing “Possible IP conflict in Europe” without a brief explanation or relevant contract references can raise alarm bells. Provide enough detail so that any savvy reader (like the buyer or their counsel) can quickly grasp the risk. Also, cross-reference your schedules so potential duplication doesn’t create confusion. If you have a section for “Litigation” and another for “Potential IP Infringements,” make sure relevant items appear in both places or at least cross-reference each other.
4.4 Over-Disclose While Staying Reasonable
In an ideal world, everything that might matter is on the table. For instance, if you have recurring issues with a certain type of product defect or if your supply chain partner has had historically frequent delays, a buyer will appreciate knowing. If you keep it hidden, you risk indemnification claims after close. You can mitigate that by showcasing how your team has tackled or minimized those issues. “Yes, we’ve had 10 delays in Q1, but we switched vendors in Q2 and have been on time since then.”
5. Buyer Review: What to Look Out For
On the flip side, if you’re the buyer (for instance, if you’re doing a smaller tuck-in acquisition for your startup), you’ll want to scrutinize the schedules carefully. Here’s what to keep top of mind:
- Consistency with the Main Agreement: Cross-check each line item against the reps and warranties in the main purchase agreement. If something is disclosed in a schedule, it usually can’t come back to haunt the seller—but if it’s missing, that’s your opening for indemnification or renegotiation.
- Completeness: Are there items that your diligence turned up, but the seller didn’t mention? If so, you may need more details or an explanation as to why they left it out.
- Material vs. Nonmaterial: Check if the seller’s definition of “material” lines up with your business logic. Sometimes they might call something immaterial that you consider a big deal—like a key customer that forms 25% of the revenue base threatening to leave.
- Possible Additional Actions: Does the schedule reveal a breach of contract that requires cure before closing? Maybe a lease is about to expire. You might consider bridging that risk with an updated lease or renegotiating the purchase price if that lease was a big part of your synergy plan.
6. Negotiating the Disclosure Schedules
After you receive the draft schedules (or after you send them as the seller), expect some back-and-forth. This usually happens in a shared doc or via phone calls. Here’s what typically goes down:
6.1 Markups and Responses
Buyers might ask the seller to remove or clarify certain disclosures. Or the buyer might say, “We see you have a lawsuit in New York that you’ve only vaguely described—please expand on that.” Meanwhile, sellers might push for global references that automatically apply across multiple schedules (like referencing a single item under “Litigation” to also count for “Financial Liabilities”). Buyers usually prefer specificity to avoid confusion.
6.2 Potential Remedies
- Price Adjustments: If a big unknown hits the schedule—like a newly filed lawsuit or a major capital expenditure—buyers might want to lower the purchase price.
- Special Indemnities: If the buyer isn’t comfortable with a big disclosure but still wants to proceed, the buyer might insist on indemnification language that specifically covers that risk.
- Closing Conditions: Some issues (like a lien on essential IP) must be resolved before closing. The buyer could make it a requirement that the seller settle the lien or secure a license before any money changes hands.
- Walking Away: In extreme cases, if the newly disclosed risks go against the entire rationale for the deal, the buyer may terminate. Most often, though, these concerns are hammered out by shifting risk and adjusting the deal terms.
6.3 Timing and Updates
For many startups, the time from term sheet to closing can be a sprint. New items can pop up at any moment—a newly discovered bug in your core software, a letter from a government agency, or a big customer quietly switching to a competitor. If the gap between signing and closing is a few months, consider if the agreement allows you to “update” your schedules or if that’s strictly off-limits. Typically, sellers want the right to update so they can avoid a breach if something changes. Buyers, on the other hand, don’t want never-ending disclaimers that keep popping up. Striking a fair balance is key.
7. Practical Tips and Final Thoughts
Here are a few final considerations to keep in mind when dealing with disclosure schedules:
- Start Early: The scariest risk is a missed item revealed just before closing. By collecting data from day one, you reduce frantic last-minute scrambles.
- Keep an Organized Data Room: Sync your disclosures with the documents you’ve provided in diligence. If the buyer sees contradictions between your data room and your schedules, it’s a red flag.
- Seek Specialist Help: If you’re wading into IP, tax, or real estate complexities, don’t wing it. Involve an attorney or a specialized consultant who knows the pitfalls in that domain.
- Balance Detail with Clarity: More info is generally good, but make sure it’s structured and easily understandable. Use cross-references carefully so the buyer won’t claim it was “buried” in a hundred pages of disclosures.
- Communicate with Your Team: Founders often rely on a small, trusted group. Make sure the CFO, head of HR, and whoever else might hold relevant knowledge is aware of updates or changes in the acquisition agreement so they can keep the schedules current.
In YC parlance, you want to move fast, but you can’t break things here—especially if “things” include your entire acquisition. Disclosure schedules might seem like an onerous step, but they’re vital for a smooth closing. They protect you from post-deal nightmares and give your buyer confidence in what they’re getting. Ultimately, well-prepared schedules can shorten negotiations, boost mutual trust, and help you finalize a higher-value deal that sets you up for continued success after the transaction.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For specific guidance, consult a qualified attorney before proceeding with your M&A transaction.
