The Legal Guide to Buying or Selling a Business
| John M. McCormick | business, Mergers & Acquisitions
Quick Answer
Buying or selling a business typically moves through six stages: preparation, the letter of intent, due diligence, the definitive purchase agreement, financing, and closing. The most important legal decisions are deal structure, how the price is paid, how risk is allocated through representations and indemnification, and how employees, contracts, and non-competes are handled. Each decision affects the after-tax result for both sides.
Whether you are buying your first business, selling a company you spent decades building, or adding an acquisition to an existing operation, the legal process follows a predictable path. This guide explains each stage and links to our detailed articles on each topic.
What Are the Stages of Buying or Selling a Business?
| Stage | What Happens | Learn More |
|---|---|---|
| 1. Preparation | Seller organizes records and resolves issues; buyer defines criteria and financing | Preparing your business for sale |
| 2. Letter of intent | Parties agree on price, structure, and key terms; exclusivity begins | Letters of intent |
| 3. Due diligence | Buyer verifies legal, financial, and operational facts | Due diligence checklist |
| 4. Purchase agreement | Parties negotiate the definitive agreement and disclosure schedules | Reps, warranties, and indemnification |
| 5. Financing | Lender underwrites and issues commitment; seller financing documented | SBA acquisition loans |
| 6. Closing and transition | Documents signed, funds transferred, consents obtained, transition begins | Covered below |
Asset Purchase or Stock Purchase?
Structure comes first because it affects taxes, liability, and consents. Buyers often prefer asset purchases for liability protection and a stepped-up tax basis. Sellers often prefer stock sales for simplicity and tax treatment. Hybrid approaches can sometimes give both sides part of what they want. Read our full comparison of asset purchase vs. stock purchase.
The Letter of Intent
The LOI sets the business terms and starts exclusivity. Most of its terms are non-binding, but confidentiality and exclusivity usually are. Sellers have the most leverage before signing it, so the important terms belong in it. See our guide to letters of intent in business acquisitions.
Due Diligence
The buyer reviews corporate records, contracts, employees, intellectual property, real estate, litigation, liens, licenses, taxes, and insurance. Findings shape the price and the purchase agreement. Use our legal due diligence checklist as a starting point.
The Purchase Agreement
The definitive agreement contains the price mechanics, representations and warranties, covenants, closing conditions, and indemnification. Survival periods, baskets, caps, escrows, and set-off rights determine who pays if something goes wrong after closing. Learn how these work in our article on reps, warranties, and indemnification.
How the Price Gets Paid
The headline price is only part of the story. Working capital adjustments, escrows or holdbacks, seller notes, earnouts, and rollover equity all affect what the seller actually receives and when. Read more about earnouts and seller financing.
Financing the Acquisition
Many acquisitions use bank or SBA financing. The lender's commitment letter sets conditions the purchase agreement must satisfy, including guarantees, equity injection, and rules for seller notes. See our guide to buying a business with an SBA loan.
Preparing a Business for Sale
Sellers who resolve issues before going to market protect their price and close faster. Common steps include corporate cleanup, contract review, transferring intellectual property into the company, extending leases, and tax planning. Our seller preparation checklist covers each step.
Non-Competes, Employees, and Key Contracts
Buyers protect the goodwill they purchase with non-compete, non-solicitation, and confidentiality covenants, which must be reasonable under applicable state law. Employee transitions and contract consents also need planning. Read about non-competes, employees, and key contracts in a business sale.
Doing a Deal in Virginia or North Carolina?
Most of our transactions involve Virginia or North Carolina businesses, and each state has its own filing offices, tax clearance steps, licensing rules, and non-compete law. See our state guides to buying or selling a business in Virginia and buying or selling a business in North Carolina.
What Happens at Closing and After?
- Signing of the purchase agreement or closing deliverables, such as a bill of sale, assignment agreements, or stock or interest assignments
- Payoff of existing debt and release of liens
- Third-party consents and landlord approvals
- Funding through the lender, escrow agent, or closing attorney
- Post-closing filings, such as updating state business records and licenses
- Working capital or other purchase price adjustments
- Transition services and the seller's consulting or employment role
- Tax reporting, including purchase price allocation in asset deals
When Should You Hire an M&A Attorney?
Before you sign a letter of intent. That is when structure, payment terms, and exclusivity are set, and when your leverage is greatest. An attorney can also coordinate with your CPA, broker, and lender so the legal, tax, and financing pieces fit together. Learn more about our mergers and acquisitions services.
Buying or Selling a Medical Practice?
Physician practice transactions involve additional regulatory issues, including corporate practice of medicine rules, payer contracts, and federal healthcare laws. Our physician-focused division, Med Contract Law, handles those transactions.
Attorney Insight
Every successful deal I have worked on had the same foundation: both sides understood the after-tax economics, the documents matched the financing, and problems were found early enough to solve. None of that requires a large transaction. It requires starting the legal work at the right time.
Frequently Asked Questions
How long does it take to buy or sell a business?
Timelines vary with deal size, financing, and how prepared the seller is. Lender involvement, third-party consents, and diligence findings are the most common sources of delay.
What is the difference between M&A and buying a small business?
Legally, very little. The same building blocks apply: structure, LOI, diligence, purchase agreement, financing, and closing. The scale and complexity differ.
Do both buyer and seller need their own attorneys?
Yes. Buyer and seller have opposing interests in nearly every term of the deal, so each side should have its own attorney. Professional conduct rules allow one lawyer to represent both sides only in limited circumstances: the lawyer must reasonably believe both clients can be represented competently and diligently, and each client must consent in writing after full disclosure of the conflict. Where the parties' negotiating interests are fundamentally opposed, as they usually are in a business sale, joint representation is not appropriate.
Do you handle transactions outside Virginia and North Carolina?
Yes, in appropriate cases. Our attorneys are licensed in Virginia and North Carolina, and we regularly assist clients with transactions involving other states. When a matter involves the law of a state where we are not licensed, we associate with appropriately licensed counsel or otherwise proceed only as permitted by applicable law.
Ready to Buy or Sell a Business?
McCormick Law & Consulting represents buyers and sellers in business acquisitions, primarily in Virginia and North Carolina and in transactions that cross state lines. The transactions in which we have represented a party total hundreds of millions of dollars in combined deal value, a measure of the size of those deals, not of amounts recovered or earned for clients. We have formed roughly a thousand new business entities and currently represent hundreds of businesses, so we approach every deal from the operating side as well as the legal side. Every transaction is different, and the size or outcome of past deals does not predict the result in yours.
With offices in Norfolk, Virginia and Raleigh, North Carolina, we handle most of our transactions in those two states and also assist clients with multistate transactions. If you are buying or selling a business, a short call early in the process can save time, money, and leverage later. Learn more about our mergers and acquisitions practice.
This article provides general information only. It is not legal, tax, or financial advice and does not create an attorney-client relationship. Laws differ by state and change over time. Our attorneys are licensed in Virginia and North Carolina. We assist clients with business transactions involving multiple states. For matters involving the law of a state where we are not licensed, we associate with appropriately licensed counsel or otherwise proceed only as permitted by applicable law.