Selling A Business: Legal Documents You Need

When you are ready to sell your business, an attorney drafts several legal documents along the way. From early discussions to closing, these documents protect both parties, guide negotiations, and spell out the terms of the deal.

This article gives a quick overview of the preliminary legal documents you will need when you decide to sell your business.

Confidentiality Agreement

When you speak with a potential buyer, the first document you need is a confidentiality agreement — more commonly called a non-disclosure agreement (NDA).

During due diligence, the buyer will ask to see historical data: business financials, commercial contracts with suppliers, vendors, and customers. That data is not public. You want to keep it that way.

Due diligence is the process by which a buyer investigates and confirms key information about the seller. The goal is to assess the health and potential of the business and understand the risks involved.

A one-way NDA protects against the buyer disclosing information you share. But a smart seller will also want to verify the buyer’s credentials and conduct their own due diligence. If you plan to ask the buyer for confidential information in return, a two-way NDA is the right choice.

Without an NDA, the buyer can take your information and share it freely. Would you want a competitor to see your financials or your customer lists?

Of course not!

There is another risk to consider. A buyer may start due diligence and then walk away from the deal. A well-drafted NDA keeps protecting your information after the buyer pulls out. It also preserves your right to seek remedies if the buyer leaks your data — accidentally or deliberately.

Read: What is a Non-Disclosure Agreement (NDA) — Everything You Need to Know

Term Sheet

A term sheet outlines the preliminary terms that a letter of intent later formalises. This type of document is less formal than a letter of intent. It lists the most critical terms: the purchase price, the deal structure (asset vs. stock), no-shop restrictions, and a reference to the NDA.

Term sheets use a grid or list format. They avoid unnecessary legal language. Many parties skip the term sheet entirely and move straight to a letter of intent, since the two documents cover similar ground.

Letter of Intent (LOI)

A letter of intent declares the preliminary intentions and commitments of both parties regarding the deal.

It sets out the major terms and conditions. The purchase agreement later formalises these terms. Like a term sheet, the LOI covers the purchase price and deal structure — but in far greater detail. It also addresses purchase price adjustments and which liabilities the buyer assumes. It specifies who pays each transaction fee and whether key employees stay on.

A well-drafted LOI covers the conditions to closing. It outlines when due diligence starts, how long it lasts, and what the buyer will review.

A letter of intent may or may not bind the parties. This depends on how it is written. A well-drafted LOI includes clear language that limits the extent to which the agreement is binding.

The LOI also serves another purpose. When the deal is not a cash purchase, the seller can use it to approach lenders. It shows the terms both sides have agreed on.

Benefits of Working with Nocturnal Legal

Nocturnal Legal drafts your preliminary documents properly to reduce legal risk, protect your confidential and proprietary business information, and build the foundation for a fair purchase agreement. Attorney Paloma prides herself on helping business owners sell to large corporations. Strong negotiation skills are essential in those deals, and she delivers fair market terms and a smooth closing.