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You Can’t Guarantee Love, but a Parent Can Guarantee an Affiliate’s Obligations

February 13, 2024 (2 min read)

There are no binding guarantees or third party obligations without an obligor expressly granting such guarantee for another party’s obligations. In M&A transactions, a party may require that a parent company enter into a limited guaranty to guarantee a parent affiliate’s payment for a number of reasons, including (1) when the purchaser party to the acquisition agreement is a newly formed acquisition entity, (2) when a seller of substantially all assets will no longer have assets to support indemnification obligations, (3) in distressed asset deals, when the seller may default on a retained liability and trigger successor liability claims against purchaser, and (4) in seller-financed transactions, which require the purchaser parent guarantee purchaser payments under a promissory note made by purchaser. Check out this new Parent Guaranty (M&A Transaction) template with drafting notes and optional and alternate clauses.       

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  • Guaranties Resource Kit
    Browse a selection of practice notes, checklists, and templates addressing the creation and types of guaranties, as well as enforceability issues, before drafting your next limited guaranty for an M&A transaction.

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