“Two’s company, three may be a crowd”: the importance of considering third-party beneficiaries

In a typical M&A transaction, the vendor and the purchaser are front and centre stage. The spotlight is focused on the parties to the transaction, the negotiations and “papering” the deal. However, together with their respective counsel, the vendor and purchaser must also consider the role of third-party beneficiaries. Who is a third-party beneficiary? To fully appreciate the importance of third-party beneficiary issues, it is necessary to understand how a third party can become a beneficiary in the first place. Many purchase and sale agreements contain representations and warranties that may be relied upon by persons who are not parties by definition, but nevertheless seek to benefit from the agreement. For instance, employees may attempt to benefit from a provision related to continued employment for the target company employees when such a provision is typically intended to benefit and be enforceable by the purchaser. On the flip side, a purchaser may want to…

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