Post-Closing Covenant

A post-closing covenant is a contractual obligation the seller carries after the deal closes. Unlike representations and warranties, which are backward-looking statements about the business's condition, covenants are forward-looking requirements: things the seller must do or ensure during a defined period after closing. Common examples include ensuring additional employees achieve professional certifications, maintaining relationships with key customers through a transition period, completing a knowledge-transfer manual, or meeting specific operational milestones. The enforcement mechanism is typically escrow: if the milestone is not met, a defined amount is withheld from the seller's escrow release. Post-closing covenants don't always appear as dollar deductions on the purchase price, but they impose obligations that constrain the seller's time, attention, and options after the deal closes. The work the covenant requires is almost always work the founder could have done on their own schedule, at their own pace, before the sale. After closing, it's a contractual requirement with a deadline and a penalty.