Skip to main content

How to Prepare Your Business for Sale: A Legal Checklist

| John M. McCormick | ,

Quick Answer

Preparing a business for sale means cleaning up the legal, financial, and operational issues a buyer will find in due diligence, before a buyer finds them. Key steps include organizing company records, confirming contracts can transfer, documenting intellectual property ownership, reducing dependence on the owner, resolving disputes and liens, extending key leases, and planning the tax result with a CPA. Preparation protects price and shortens the time to closing.

This article is part of our Legal Guide to Buying or Selling a Business.

Most of what reduces a seller's price is discovered in due diligence. Every issue a buyer finds becomes a negotiating point, a reason for a larger escrow, or a reason to walk away. Sellers who prepare control the story.

Corporate Housekeeping

  • Confirm the company is in good standing in every state where it operates
  • Update the operating agreement or bylaws and ownership records
  • Document past major decisions with written consents
  • Resolve any informal promises of equity to employees or partners

Contracts and Assignability

Review key customer, supplier, and vendor contracts for assignment and change-of-control restrictions. If a major contract cannot transfer without consent, that can affect structure and price. Where possible, put informal relationships into written agreements.

Financial Records

Work with a CPA to produce clean, consistent financial statements and tax returns. Separate personal expenses from business expenses, and document any adjustments you will ask a buyer to accept. A quality of earnings review may be worthwhile for larger businesses.

Owner Dependence and Key Employees

A business that depends entirely on its owner is worth less and harder to finance. Document processes, develop a management team, and consider retention arrangements for key employees. Confirm that key employees have signed confidentiality and non-solicitation agreements the company can enforce.

Intellectual Property and Digital Assets

Confirm the company, not an owner personally, holds the trademarks, domain names, websites, social media accounts, and software licenses. Obtain written assignments from contractors and developers who created important materials.

Real Estate and Leases

If the business leases its location, review the remaining term, renewal options, and assignment provisions. Buyers and lenders often require a lease term that extends well beyond closing. Addressing this with the landlord before going to market avoids delays later.

Disputes, Liens, and Compliance

Resolve open disputes where practical, obtain lien releases for paid-off debt, and confirm licenses and permits are current. These are common findings that slow down closings.

Tax and Structure Planning

The after-tax result often depends on structure. Understand the difference between an asset purchase and a stock purchase and the tax impact of each before negotiating a letter of intent. If the buyer will use SBA financing, review our guide to buying a business with an SBA loan so you understand the lender's likely requirements for any seller note.

State Steps for Virginia and North Carolina Sellers

Confirm that annual reports (or, for Virginia LLCs, annual registration fees) and registered agent information are current with the Virginia State Corporation Commission or the North Carolina Secretary of State, since buyers and lenders will ask for proof of good standing. Virginia sellers should know that a dealer who sells its business must file a final sales tax return and pay any balance within fifteen days after the sale (Va. Code § 58.1-629), and that the buyer can withhold purchase money until the seller shows those taxes are paid. North Carolina sellers must file their sales and use tax return within 30 days after the transfer, and the buyer can withhold purchase money until the seller produces a statement from the Secretary of Revenue that the taxes are paid or that none are due (N.C. Gen. Stat. § 105-164.38). In both states, check whether local business licenses, contractor licenses, or alcohol permits will need to be closed out or obtained fresh by the buyer.

Build Your Team and Data Room

A sale typically involves an M&A attorney, a CPA, a business broker or investment banker, and often a wealth advisor. Organize key documents in a secure electronic data room so diligence moves quickly.

Attorney Insight

The best time to talk with an attorney about selling is before you talk with a buyer. Issues we can fix quietly in advance, such as a domain in the owner's name or a lease with two years left, become leverage for the other side once a deal is underway.

Frequently Asked Questions

How far in advance should I prepare to sell my business?

As early as possible. Some steps, such as cleaning up financial records or reducing owner dependence, take significant time to show results.

Do I need an attorney before I hire a broker?

It helps. An attorney can review the broker engagement agreement and identify legal issues that could affect value before the business goes to market.

What documents will a buyer ask for?

Typically corporate records, financial statements, tax returns, contracts, leases, employee information, intellectual property records, and licenses.

Continue Reading

Planning to Sell? Start With a Conversation

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.

Book a Business Consultation

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.