Selling Your Startup

18Legal Considerations

What legal considerations should you be alert to when selling your company?

There are many legal considerations when negotiating an exit. You need to be aware of the potential risks and hurdles on your side, as well as what the perceived liabilities are for the buyer—plus, how to mitigate these risks and the adjustments a seasoned buyer and banker will demand in exchange.

Following are some of the most common legal questions and concerns when it comes to M&A.

Regulations and Regulators

Be keenly alert to any regulatory issues that could kill the deal. The issues may be big and obvious monopoly and antitrust issues or they could be industry-specific licensing issues. Real estate, insurance, health care, and communications companies can be particularly subject to governance. Be sure that ownership changes, especially across state borders, won't trigger legal issues that can cause the deal to blow up at the last moment.

Due Diligence and Assumed Liability

Generally, the acquiring company is going to be assuming the legal risks and liabilities of the target company when they close on the deal.

This, among the other factors in this list, is the reason due diligence can be so cumbersome, time-consuming, and painful. Acquirers want to have clarity on what exposure they may have, how much that may cost, and the liabilities they may encounter in the future.

This can specifically include any noncompliance issues or pending litigation. This may even take into ...