The asset and liability guarantee (GAP) is undoubtedly the most cited clause, and paradoxically the least understood, in business transfer transactions. Present in almost all securities sales contracts, it formalizes the seller’s commitment to compensate the buyer if something from the past degrades the value of the company after closing. Behind a legal technicality, it materializes a border between the period when the transferor manages and the period when he definitively transfers.
When a manager sells his company, he often thinks of shedding his risk in exchange for a price. In reality, GAP reintroduces this risk, but in another form, that of a potential liability on one’s personal assets. In practice, if a tax adjustment, a social dispute or a hidden debt appears, the buyer can claim financial compensation. This mechanism, which seems logical in principle, becomes explosive when poorly prepared. The seller believes he has “turned the page”, the buyer discovers a problem, and the clause, supposed to provide security, sparks a conflict.
👉 Example : a manager sells his industrial SME in 2024. Two years later, the buyer discovers a URSSAF adjustment on undeclared premiums between 2019 and 2022. The triggering event being prior to the sale, the guarantee applies and part of the transfer price must be returned.
Historically, GAP was based on an accounting approach, the balance sheet was guaranteed, line by line. But operations are no longer measured only in asset value. Buyers now think in terms of flows (EBITDA, recurring revenue, key contracts, intellectual property), all elements which do not always appear in the accounts. The guarantee has therefore evolved: it no longer aims only to correct an accounting imbalance, but to ensure the conformity of what was sold with what was promised.
👉 Old example: if the balance sheet showed €500,000 in trade receivables, but part of it proved unrecoverable, the seller had to make up the difference.
Today, transactions in tech and SaaS are no longer valued on assets, but on future performance and recurrence of revenue. The guarantee must therefore ensure that the intangible economic assets (intellectual property, customer base, licensing contracts) exist and are legally solid.
👉 SaaS example: a B2B software startup is valued at €8 million, or 10x its EBITDA of €800,000. One of its three largest clients, representing 25% of turnover, had signed a tacitly renewable framework contract. After the sale, this customer decides not to renew the subscription, invoking a free termination clause. As a result, the company loses a quarter of its recurring revenue, and the initial valuation collapses. The purchaser invokes the guarantee: the “customer contract” asset presented as firm did not exist in law. It is no longer just a question of balance sheet, but of economic substance.
This shift has transformed the guarantee of assets and liabilities into a real instrument of contractual truth and serves to verify that the company corresponds to the photo presented during due diligence. But it is not intended to cover future risks. Therefore, a dispute arising after the sale, a subsequent loss of customer or a change of market are not covered by this guarantee. The field of GAP is the past and only the past.
The major difficulty comes from the psychological gap between the transferor, who seeks to deriskand the legal logic, which re-engage. For a manager who has built his business over several years, being told that he must guarantee risks that he thought he had passed on is often experienced as an injustice. Hence the importance of upstream education, explaining that GAP is not a trap, but a contractual distribution of responsibilities. A poorly understood clause becomes a deal breaker, but when well anticipated, it makes the negotiation more fluid.
Practice reveals several high-risk areas, starting with theexonerating audit. This clause, often presented as innocuous, can neutralize any protection for the purchaser by making the guarantee inapplicable for any “identifiable” element in the data room. Another critical point, the definition of harmdepending on whether we compensate for the accounting loss, the loss of profit or the loss of value, the result can vary from 1 to 10, especially in transactions valued on a multiple of EBITDA. Finally, the remediation clause becomes essential because it allows the seller to deal with a dispute before any warranty call avoids many unnecessary disputes.
For the buyer, the objective is to obtain real coverage of the risk without making the price meaningless, while for the seller, it is a question of protecting his assets while respecting the economic logic of the deal. Tools vary, this may be a receivera bank guarantee on first demandor a reinvestment partial serving as a counter-guarantee. But the key remains the same: define, upstream, what we sell, what we guarantee, and what we exclude.
The security mechanisms vary depending on the size of the deal:
- CARPA Receiver : simple but not very productive, money is sleeping.
- First demand bank guarantee (GAR) : more effective, immediate activation.
- Reinvestment or seller credit : widely used in mid-cap, the amount due can be offset with the reinvested capital. 👉 Example : a transferor reinvests 20% of its price in the acquisition holding company. If a hidden liability appears, compensation is made on these securities rather than by direct reimbursement.
The asset and liability guarantee is not a standard clause to simply check at the end of the negotiation. It is the hinge between perceived value and real value. Understanding it in every detail before signing prevents a well-concluded deal from becoming a bitter dispute.
