How can I retain a key operating license post-close?

July 26, 2024

by a searcher from Duke University in Miami Beach, FL, USA

Drafting an LOI where the seller holds a key operating license.

What are some common ways to retain that license post-close? Equity kicker in new corp, royalty, monthly fixed fee?

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Reply by a lender
from California State University, Sacramento in Seattle, WA, USA

Live Oak has handled this in several ways. And my comments are general would need to know way more about the industry and state requirements. Some ideas: 1) SBA allows partial seller retention/partial change of ownership with a stock sale. Keep the seller on with % ownership less than 20% and they don’t have to PG (assuming they aren’t key to the operations) the business can keep using the license permanently. 2) consider having two employees with agreements get their licensees that the company can use. 3). Depends on how long with will take for you to get your license as to how we feel about 1 and 2 above. There are some states that allow you to rent third party licenses and before commenting on that strategy I’d want to know about all the things I commented on. redacted We do a lot of home services companies and other that require licensing. Reach out if you’d like to discuss.

Reply by a searcher
from The University of North Carolina at Chapel Hill in Austin, TX, USA

Consider the biggest 3 factors: who owns the license (the business, or the an individual), what are the requirements (skills, years of experience, etc.) and how long does the licensing process take (some can take almost a year to get depending on how slow and backed up the licensing agency is). If your management team would not qualify to get the license, my strategy is usually to make the key employee less key by having at least 2 people with the license as employees of the business at all times (that's if the license stays with the individual and not the business.

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