Seller Transition Agreement Investigations in Michigan

In a post-closing employment agreement, the seller formally remains with the company as an employee for a defined period — typically 30 days to two years. Their role may involve training new management, maintaining client relationships, or overseeing day-to-day operations during the handover. Non-compliance can include abandoning the role, refusing to perform agreed duties, or constructively resigning by making the position untenable.

A consulting agreement keeps the seller involved on a part-time or as-needed basis without formal employment. The seller is typically compensated for their advisory services and may be required to be available for a set number of hours per week or month. Non-compliance often looks like unavailability, failure to respond to requests, or providing deliberately unhelpful guidance.

A management transition agreement places specific obligations on the seller to actively transfer operational knowledge, introduce the new owner to key clients and vendors, and hand over management responsibilities in an organized manner. This type of agreement is especially critical in service businesses where the seller's personal relationships are a core part of the company's value. Non-compliance can devastate client retention and operational continuity.

In an earn-out arrangement, a portion of the purchase price is deferred and paid only if the business meets certain performance targets — revenue, profit, customer retention, or other metrics — during a defined period while the seller remains involved. This aligns the seller's financial interest with the business's success. However, it also creates an incentive for manipulation: sellers may attempt to inflate short-term metrics, defer costs, or accelerate revenue recognition to hit targets artificially.

A retention or holdback provision withholds a portion of the purchase price — often 10–20% — in escrow until the seller satisfies specific post-closing obligations. These may include completing a transition checklist, achieving certain milestones, or simply remaining available for a defined period. If the seller fails to meet those obligations, the buyer may have the right to retain some or all of the holdback amount.

The most straightforward form of non-compliance: the seller simply stops showing up, refuses to fulfill agreed duties, or becomes unreachable. This may happen gradually — reduced hours, missed meetings, delayed responses — or abruptly, with the seller effectively abandoning their obligations shortly after closing. Documentation of attendance, communications, and task completion is essential to establishing a pattern of non-performance.

Non-solicitation clauses are among the most commonly violated provisions in business sale agreements. The seller may contact former clients directly — often under the guise of a personal farewell — to redirect their business to a new competing venture. Similarly, sellers may recruit key employees to join them, stripping the acquired business of institutional knowledge and talent.

Non-compete violations occur when the seller opens, joins, or operates a competing business during the restricted period defined in the sale agreement. This may be done openly or through a third party — a spouse, family member, or business associate — to obscure the seller's involvement. Geographic and industry scope of the non-compete clause will determine what constitutes a violation.

The seller may fail — intentionally or otherwise — to transfer critical business assets as required under the agreement. This can include customer lists, vendor contracts, proprietary processes, passwords and system access, intellectual property, or physical equipment. In some cases, sellers actively conceal or destroy records to prevent the buyer from operating effectively.

In more serious cases, a seller may actively work to undermine the business after the sale — spreading negative information about the new ownership to clients or vendors, interfering with operations, or taking actions designed to cause the business to fail. This type of conduct may give rise to claims beyond simple breach of contract, including tortious interference and fraud.

When part of the purchase price depends on business performance, sellers have a financial incentive to manipulate the metrics used to calculate the earn-out. This may include accelerating revenue recognition, deferring legitimate expenses, offering unsustainable discounts to inflate short-term sales, or making operational decisions that boost near-term numbers at the expense of long-term health. Buyers should monitor financial activity closely during earn-out periods.