Guide • MERGERS & ACQUISITIONS
Selling Your Business: LOI to Closing
A plain-English walk-through of what to expect at each stage of a business sale.
Updated April 2026
Selling a closely-held business is often the largest financial transaction an owner will ever see. The legal mechanics unfold in a predictable order — but the decisions made at each stage can meaningfully affect the final purchase price, the tax bill, and what liabilities follow you out the door. This guide walks through the arc from the first letter of intent to the day the funds hit the account.
1. Preparation — Before a Buyer Is at the Table
The best-run sales start six to twelve months before going to market. That lead time is used to clean up the corporate record, resolve outstanding disputes, verify that intellectual property is actually owned by the entity (not by a founder personally), and organize the financial records a buyer will demand. Sellers who skip this stage often discover problems in due diligence — at which point those problems become price adjustments.
2. Letter of Intent (LOI)
The LOI is the first meaningful document. It is typically non-binding on price and structure but binding on exclusivity and confidentiality. The price stated in the LOI tends to anchor the final number, and the structure described — asset sale vs. stock sale, earnouts, rollover equity — shapes the tax treatment for both sides.
Two provisions deserve particular attention:
- Exclusivity (no-shop). This takes you off the market for a fixed period while the buyer does diligence. Keep the window short and the termination rights clear.
- Breakup fee or expense reimbursement. Less common in smaller deals but worth raising if the buyer is asking for an extended exclusive period.
3. Due Diligence
Once the LOI is signed, the buyer’s team will request access to financial statements, tax returns, contracts, employee records, litigation history, intellectual property filings, and more. Expect this to take thirty to ninety days. The goal from the seller’s side is to respond promptly, accurately, and in a way that does not create new paper trails that contradict existing ones.
Practice Tip
Diligence is not a one-way exercise. A capable seller’s counsel uses this window to pre-draft the schedules, anticipate reps-and-warranties pushback, and flag any documents that might require redaction or consent before disclosure.
4. The Purchase Agreement
The definitive agreement is where price certainty actually lives. Key terms include the purchase-price adjustment mechanism (working-capital peg), the representations and warranties each side makes, survival periods for those reps, indemnification caps and baskets, and any escrow or holdback.
Representations and warranties insurance has become common even in middle-market deals; it can meaningfully reduce the seller’s post-closing exposure and is worth discussing early.
5. After Formation
In many deals, signing and closing happen simultaneously. In others — particularly where regulatory approvals or third-party consents are required — signing comes first and closing happens weeks or months later. The interim period carries its own risks: interim operating covenants, material-adverse-change definitions, and the buyer’s walk rights.
6. Post-Closing
Closing is not the end of the transaction. Purchase-price adjustments, escrow releases, indemnification claims, and transition-services obligations can run for a year or longer. The cleaner the closing documents, the simpler this period becomes.
Common Pitfalls
- Signing an LOI without understanding the tax consequences of the proposed structure.
- Allowing exclusivity to run long enough that leverage shifts to the buyer.
- Underestimating the time cost of diligence on day-to-day operations.
- Agreeing to uncapped indemnification for ordinary-course matters.
- Signing non-competes that reach further than the business actually operates.
Every sale is different, and the right structure depends on the buyer, the tax posture of the seller, and the goals of the owner going forward. This guide is a starting point — not a substitute for advice tailored to the specific transaction.
THINKING ABOUT SELLING?
Let’s talk before the LOI.
The earlier we’re involved, the more leverage you keep at the signing table.
