Seller preparation checklist, legal file: entity, IP, staff, disputes, broker letter

The legal side of a sale is the part an owner cannot check alone. Four questions need a lawyer's eye before a buyer sees anything: is the entity in order, what does it own, who is bound to it, and what is contested. The order of work across the whole year is on the seller preparation page.

What to take away

Start with the entity

Confirm the entity is in good standing with the state Secretary of State and that every filing owed has been made. Then obtain a current Certificate of Good Standing. Your lawyer can request it, but the state issues it, so allow for the state's own pace.

Licenses, permits and registrations come next. Check each one against the transfer rules of the body that issued it. The answer for one license says nothing about the next, because each issuing body writes its own rules. Which of these items are legal duties and which are only buyer habits is set out under seller preparation requirements.

Then list every agreement that carries a change-of-control or assignment clause: the lease first, then franchise, distribution, supply and customer contracts, then loans. Plan the approach to each counterparty so that none is asked at the last minute. Whatever stays open here comes back at closing.

What the business owns

Confirm who owns the intellectual property the business relies on: the trading name, domain names and anything a contractor built. Payment alone does not always settle who owns what a contractor produced, so look for the signed agreement that says it.

Verify trademark registrations with the USPTO, and check that the owner named on each record is the entity that is selling. A trademark can be any word, phrase, symbol, design, or a combination of these things that identifies goods or services, so a trading name may well be one.

Domain names and the trading name are easy to leave in an owner's personal name. List each one with the account it sits in and the person who holds the login. Anything held personally should either move into the company before the sale or be written down as staying with you.

Staff and the law on transfer

Review every employment contract and identify what the law requires on transfer in your state. That includes any state-level successor liability rules, and the federal notice rules if they apply. Do not guess at this part: it turns on the facts, and a lawyer should read them.

The federal rule has a name worth knowing. The WARN Act, formally the Worker Adjustment and Retraining Notification (WARN) Act, helps ensure advance notice in cases of qualified plant closings and mass layoffs. Whether a sale touches it depends on what happens to the jobs afterwards, which is a question for counsel, not an owner.

Disputes and the proof behind them

Catalog every live, threatened or recently settled dispute. For each, keep the document that shows where it stands: the letter, the filing or the signed settlement. A dispute that is settled but has no paper behind it is hard to prove settled.

Include the threatened ones. A complaint that never became a filing still belongs on the list, because the buyer's lawyer will ask the owner and the staff, not only the court record. A dispute that is missing from the list and surfaces later does more damage than one that was disclosed on day one.

What to do with each gap

Every gap in the file ends one of three ways: you fix it before going to market, you disclose it with an explanation, or the buyer prices it. Decide which with your lawyer, row by row, while you still have the choice.

Fixing is usually the cheapest of the three, because a missing filing or an unsigned agreement is a task, not a negotiation. Disclosure comes second. Pricing is what is left when neither was done, and then the buyer sets the number, not you.

The legal file at a glance

Each row below names one item, the paper that proves it, and where that paper comes from. If a row has no paper, that is the work.

Before you sign with an intermediary

Read the intermediary's engagement letter before you sign it, with attention to the tail, the fee base and the buyer register. What those clauses do is set out on the business brokers page.

The tail is the period after the agreement ends in which a fee can still fall due. The fee base is what the fee is counted on. The buyer register is the list of buyers the intermediary reports as its own introductions.

A fuller walk through six engagement letter clauses is worth doing with your lawyer before the signature, since the letter is the one document in this file that you sign without a buyer on the other side.

Prepare a standard confidentiality agreement as well, so that the first interested buyer does not set the terms. It sits beside the intermediary's step of qualifying buyers on evidence of funds and reasons for interest, before any package goes out.

The last read

Before the file leaves your desk, read it as the buyer's lawyer would. Assume that whatever exists will be found, and look for the row with no paper behind it. What survives that read is your business, and what does not is your price.

Common questions