FAQ
Common questions about corporate deals.
Plain-English answers to the questions that come up over and over in M&A, private equity, and venture capital work. Written by Walter Allison, corporate attorney in Denver (Colorado Bar #56529).
These answers are general information, not legal advice. Sending an inquiry through this site doesn’t create an attorney-client relationship. Specific deals always depend on facts that an FAQ can’t capture.
What does a corporate attorney do?
A corporate attorney handles transactions and entity-level decisions for companies and the people who fund or buy them. The day-to-day work is mergers and acquisitions documentation, financing rounds (debt and equity), corporate governance, fund formation, regulatory filings such as HSR or Reg D, and the negotiation of deal terms across all of those. Corporate attorneys do not litigate, prepare wills, handle divorces, or appear in criminal cases. The line between transactional and litigation work is firm in most U.S. firms: a deal goes wrong, a different lawyer takes it over. Walter's practice is corporate-transactional only.
What's the difference between a stock deal and an asset deal?
In a stock deal, the buyer acquires the company's equity and inherits everything inside the company by operation of law — including unknown liabilities. In an asset deal, the buyer cherry-picks specific assets and assumed liabilities, leaving the rest behind in the seller entity. Stock deals close faster and preserve the company's contracts, but transfer all litigation and tax exposure with them. Asset deals isolate the buyer from pre-closing exposure but require third-party consents for material contracts, leases, and licenses. The choice usually comes down to tax structuring, the cleanliness of the target's history, and how many contracts have anti-assignment provisions.
What is a SAFE and how does it differ from a convertible note?
A SAFE (Simple Agreement for Future Equity) is a Y Combinator-published instrument that gives the investor the right to receive equity in a future priced round, with no interest, no maturity date, and no debt characteristic. A convertible note is a loan that converts into equity at the next round, with interest that accrues until conversion and a maturity date that requires repayment or extension if no round happens. Founders generally prefer SAFEs because there's no clock and no debt sitting on the balance sheet. Investors sometimes prefer notes for the downside protection that the debt features provide. SAFE caps and discounts work the same as note caps and discounts. Both convert at a discount or a valuation cap, whichever produces a better price for the investor.
What are the HSR filing thresholds for 2026?
The Hart-Scott-Rodino size-of-transaction threshold for 2026 is $126.4 million (adjusted annually for GDP). Deals over that threshold generally require a pre-merger notification filing with both the FTC and DOJ, plus a 30-day waiting period before close. There is also a size-of-person test that can pull smaller transactions into HSR if one party has over $252.9 million in sales or assets and the other has over $25.3 million. The 2024 HSR rule changes added significant new disclosure requirements (Item 4(d) document collection scope expanded, transaction rationale documentation required, prior-acquisitions look-back lengthened). Counsel needs to be involved well before signing on any deal in this range.
What is broad-based weighted average anti-dilution?
Broad-based weighted average is a price-based anti-dilution adjustment that reduces the conversion price of preferred stock when the company issues new shares below the preferred's original purchase price. The formula uses the full diluted share count (including options and warrants — the 'broad' base) in the denominator. The result is a modest adjustment that reflects the dilutive impact of the down round without giving the preferred holders a windfall. Full ratchet, by contrast, simply resets the preferred's conversion price to the new issuance price regardless of the size of the down round — much more punitive to founders and common holders. Broad-based weighted average is the market standard in venture financings; full ratchet is rare outside of distressed situations.
What is representation and warranty insurance (R&W)?
R&W insurance is a third-party policy bought by the buyer (typically) that pays out if a seller breaches a representation in the purchase agreement. It allows the seller to take more proceeds at close (lower escrow and indemnity caps) while still giving the buyer recourse for unknown problems. Premiums run roughly 2.5 to 4 percent of policy limit, and policies typically cover 10 percent of deal value. The buyer pays a retention (deductible) of around 0.5 to 1 percent of deal value before the policy responds. The trade-off is that the carrier underwrites the diligence and the policy contains exclusions, so a sloppy diligence process can produce coverage gaps that surprise everyone at the first claim. R&W is now standard in middle-market PE-backed deals and increasingly in strategic acquisitions.
What is an earnout in M&A?
An earnout is a portion of the purchase price that the buyer pays after closing, contingent on the acquired business hitting agreed performance targets. Targets are usually revenue, EBITDA, gross profit, or operating milestones (new customer counts, product launches, regulatory approvals). Earnouts bridge valuation gaps when buyer and seller disagree on what the business is worth — the seller bets on the upside, the buyer pays only if it materializes. They generate disproportionate post-closing litigation because the operational decisions of the buyer (cost cuts, integration, investment levels) can swing whether targets are hit. The carefully drafted earnout has post-closing operating covenants, accounting methodology fixed at signing, and a defined dispute resolution mechanism.
What is rollover equity in a PE buyout?
Rollover equity is the portion of a seller's proceeds that they reinvest into the post-closing entity rather than take in cash at closing. In a PE platform acquisition, management often rolls 10 to 30 percent of their equity into the buyer's holding company. This aligns the seller's incentives with the sponsor's, gives the sponsor capital efficiency, and lets the seller participate in the second sale (the exit) if the platform grows. Rollover is structured to be tax-free under Section 351 or Section 368 when the mechanics are right; getting that wrong creates a taxable event on the rollover portion. The rolled equity sits in the same security as the sponsor's, which means management lives with the same liquidation preferences and governance restrictions.
How long does an M&A deal take to close?
From signed letter of intent to close, a typical middle-market deal runs 60 to 120 days. Diligence usually takes 30 to 45 days. Drafting and negotiating the purchase agreement runs in parallel with the back half of diligence and takes 30 to 60 days. HSR-triggered deals add 30 days of regulatory waiting period (often extended by a Second Request, which can add three to six months). Third-party consents (landlord, key customer, lender) frequently set the actual close date, not the legal calendar. Sellers consistently underestimate the timeline; buyers and PE sponsors generally have a realistic view of it. Walter's practice tends to keep deals on the shorter end of this range by frontloading diligence and starting consent outreach early.
Do I need a Colorado lawyer for a Delaware corporation deal?
Most U.S. venture-backed companies and PE acquisitions involve a Delaware corporation, but you do not need a Delaware-licensed lawyer to handle the corporate work. Delaware law is what gets applied; any state-licensed corporate attorney can practice Delaware corporate law. What you do need is a Colorado-licensed lawyer if the deal involves Colorado-specific elements — real estate located in the state, regulated activities under Colorado law (cannabis, alcohol, mining), state-tax structuring, or local litigation. Walter is licensed in Colorado (Bar #56529) and handles Delaware corporate work for clients across the country from his Denver office. Multi-state deals get the right additional admissions looped in through the firm's national platform.
Didn’t find your question?
This list will grow. If you have a question about an M&A, private equity, or venture capital matter that isn’t covered here, send Walter a note and he’ll either answer it directly or add the question to this page.
Walter Allison is licensed to practice law in Colorado (Bar #56529, admitted 2021, status: Active). License verifiable at the Colorado Supreme Court Office of Attorney Regulation Counsel directory.