The Six Legal Stages of an Acquisition

The legal process of selling a company is a critical and often complex journey that can be broken down into six distinct stages. Understanding this framework is essential for any founder contemplating an exit.

1. The Letter of Intent (LOI)

What it is: The first serious, non-binding offer from a buyer that outlines the core terms of the potential deal, including purchase price, due diligence requirements, and an exclusivity period.
Key Action: Both parties sign the LOI, which typically includes a nondisclosure agreement (NDA) to protect the seller's sensitive information. This commits the seller to negotiate exclusively with the buyer for a set period.

2. Due Diligence

What it is: An intense, forensic audit of the seller's business. The buyer scrutinizes financials, technology, legal structure, and operations to verify claims and uncover risks.
Key Action: The seller and their leadership team work with lawyers to respond to the buyer's extensive requests for information. This is a period of high stress and requires meticulous preparation. This is also known as The Intensity of Acquisition Due Diligence.

3. The Purchase Agreement

What it is: The final, legally binding contract that solidifies the terms of the sale. It can be hundreds of pages of dense legal language.
Key Action: The seller's M&A lawyer must review this document in extreme detail, paying close attention to post-sale responsibilities and liabilities to ensure the founder is protected.

4. Buyer Payment Terms

What it is: The agreement on how the buyer will pay for the company.
Key Action: The seller negotiates the payment structure. The ideal scenario is an all-cash sale. Alternatives like bank financing or seller financing introduce additional risk and complexity that must be carefully evaluated.

5. Local Laws and Compliance

What it is: Ensuring the transaction complies with all relevant local, state, and federal regulations.
Key Action: The legal team must clear any liens or debts, manage shareholder approvals, and ensure all tax obligations (like sales tax) are settled before the transfer of ownership.

6. Transfer of Ownership

What it is: The final stage where the contracts are signed and the business legally changes hands.
Key Action: Signing the final paperwork and confirming the wire transfer.

Navigating these stages requires expert legal counsel. A good M&A lawyer is not a place to "bootstrap" and is essential for protecting the founder's interests and ensuring a smooth closing.