Selling Your Startup? The 6 Legal Stages to Know

Nothing can sink a business acquisition quite like the legal process. It’s easily the most critical part of selling your company, but it can also be the messiest. If you don't get a handle on the legal steps involved, you could walk away with a lower price or, even worse, no deal at all.

But here’s the thing: while the legal side might seem dry, it isn’t impossibly complex. You can think of it as a journey with six distinct stages. The further you get, the more serious the buyer is, and the higher the chances of closing the deal. I’ve laid out these stages below, based on what I’ve seen in many acquisitions. Getting familiar with them will make the whole process feel a lot less intimidating.

Stage 1: The Letter of Intent (LOI)

The LOI is the first real sign that a buyer is serious. It's essentially a rough draft outlining how the sale will likely proceed, with plenty of room for negotiation. Either you or the buyer can draft it, but it needs to be signed by both parties to move forward. A typical LOI will cover the purchase price, due diligence requirements, any deposit, and an exclusivity period.

While an LOI is non-binding, it does lock you into an exclusive negotiation period. In exchange, the buyer is committed to taking a deep look into your business. Because of this, the LOI should always include a nondisclosure agreement (NDA) to protect your company's sensitive information and intellectual property.

Stage 2: Due Diligence

Think of due diligence as an audit on steroids. This is where the buyer puts your entire business under a microscope. They’ll scrutinize your financial records, projections, technology, team, debts, and just about everything else with forensic precision. It can feel intense, but remember their goal is just to make sure there are no unpleasant surprises waiting after the sale is complete.

My strongest advice for this stage is to get a lawyer—specifically, the best mergers and acquisitions lawyer you can afford. While you might be able to handle some of the information gathering yourself, an expert will speed everything up and help you avoid costly mistakes that could jeopardize the sale of your .

Stage 3: The Purchase Agreement

This is the document that makes it all official. The purchase agreement is legally binding and finalizes the terms you and the buyer have negotiated. Once again, either party can write it, but you absolutely should not sign anything until your lawyer has reviewed every detail.

Pay close attention to any guarantees or obligations placed on you. For instance, the buyer might require you to fix an issue discovered during due diligence. This is normal, but you don't want to be held responsible for things years down the road. Ideally, your post-sale responsibilities should be minimal and expire within a year. A good lawyer is worth their weight in gold here, as these agreements can be hundreds of pages long. This isn't the time to bootstrap; investing in an expert is crucial when selling a successful .

Stage 4: Buyer Payment Terms

In a perfect world, every sale would be a simple cash deal. However, buyers don't always have the full amount on hand and may need to secure financing from a bank. If that's the case, the sale depends on a credit decision, and you should get confirmation of this before signing the purchase agreement.

Some buyers may also propose seller financing, where you accept a down payment and let them pay the rest in installments. This is definitely riskier. If the buyer defaults, you’re left dealing with the courts, and your business could be in limbo. Still, if your lawyer gives the green light, a seller financing arrangement might be better than no deal at all, especially if you need to sell quickly.

Stage 5: Local Laws

Don't forget that local laws and regulations will impact the sale. You and the buyer will have specific rules to follow, and ignoring them can lead to delays, penalties, or even a complete halt to the acquisition. Any needs to be aware of this.

Be mindful of things like liens or other debts tied to your property. If you can’t pay them off, the buyer needs to know exactly what’s outstanding. You'll also need to check with creditors to see if they'll extend the same credit terms to the new owner. If you have shareholders, you'll likely need their approval for the sale. And then there are taxes, like sales tax, which vary by state. Make sure everything is settled before you hand over the keys.

Stage 6: Transfer of Ownership

You’ve made it to the final step. After navigating negotiations, agreements, and state laws, all that's left is to legally transfer your business to its new owner. There’s very little that can go wrong at this point. You’ll have a stack of contracts to sign, but once that’s done, you’re officially finished.