Key Employee

What It Means

The term Key Employee has a specific meaning defined by the IRS in regards to company-sponsored retirement plans, but in the context of the purchase and sale of a business, the term Key Employee often refers to highly compensated employees that are critically important to the business operations.

Why It’s Important

When a company changes ownership after an Acquisition, some things are expected to change and others are expected to stay the same. Key Employees are one of those key success factors that are most often expected to stay the same. Buyers will want to know who the Key Employees are and will probably also look for some assurances that they will remain with the company after the sale. Key Employees may be expected to sign new employment agreements to alleviate these concerns. This is usually not a problem, but in some cases the Seller may prefer to keep the sale a secret and restrict access to employees. In these situations, the parties should address these concerns early in Due Diligence to see if a compromise can be found to help the deal move forward towards a closing.

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Key Employee

What It Means

Why It’s Important

Related Terms

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