Glossary
Ordinary course of business
The normal day to day running of a business, used in sale agreements to define what the seller may and may not do between a locked box date or signing and completion.
In plain English
Once a price is agreed, the buyer wants the business delivered in the state it was valued in. The seller agrees to run it in the ordinary course: no unusual payments, no new long term commitments, no changes to pay or contracts, no dividends, unless agreed. In a locked box deal, payments outside the ordinary course are leakage and must be repaid.
The definition matters in practice. A business that always pays bonuses in March should be able to pay them; one that suddenly pays a large bonus the week before completion should not.
Why it matters
Sellers need enough freedom to keep the business running well; buyers need protection against value leaving. The drafting balances the two.
What to watch for
- Agree a list of permitted actions and payments in advance.
- Consider the timing of bonuses, dividends and capital expenditure.
- Keep records so that ordinary-course activity can be demonstrated.
Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.