What Are the Steps to Sell a Business, From LOI to Closing?

The steps to sell a business are roughly the same whether the buyer is a competitor, a private equity fund, or your general manager: get the company ready, find and qualify a buyer, agree on terms in a letter of intent, survive diligence, negotiate the purchase agreement, satisfy the closing conditions, and then live with the post-closing terms. What varies is how long each step takes and where the deal can fall apart. The sell-side M&A practice at Capitol Law Partners spends most of its effort on the first step, because problems found in preparation cost far less than the same problems found by a buyer.

Step 1: Prepare the company before anyone looks at it

Buyers pay for clean businesses and discount messy ones. Before going to market, fix what a buyer’s diligence will find. Bring the minute book current, confirm the cap table matches the stock ledger, and make sure every owner is on record. Collect signed copies of every material contract and note which ones require consent to assign or contain change-of-control terms. Confirm that every employee and contractor who built your product signed an invention assignment. Resolve or at least document pending disputes. Bring state filings and tax returns current.

This is also the time to decide what you are selling. If the company holds assets you want to keep, such as real estate or a side business, carve them out now. If the entity has old liabilities, think through whether an asset sale is realistic; our post comparing asset purchases and stock purchases explains why buyers often push for one and sellers for the other.

Corporate authority matters too. Selling the company usually requires board approval and, for a sale of all or substantially all assets, shareholder or member approval under the governing documents and state law. Our post on when a board resolution is required covers the mechanics.

Step 2: Confidentiality and the letter of intent

Before sharing anything beyond a blind summary, get a signed nondisclosure agreement. A sell-side NDA should cover the existence of the discussions, restrict use of the information to evaluating the deal, limit who can see it, prohibit soliciting your employees and customers for a period, and require return or destruction of materials if talks end. Buyers who refuse a reasonable NDA are telling you something. If you use a broker or investment banker, their engagement letter deserves the same scrutiny as any other contract: the fee, the tail period after the engagement ends, and what counts as a transaction.

The LOI then sets price, structure, and the main economic terms, and typically grants the buyer exclusivity for a defined period. Most of its terms are non-binding, but exclusivity, confidentiality, and sometimes a duty to negotiate in good faith are binding. Our post on whether a letter of intent is binding explains which clauses matter. For sellers, the LOI is the point of maximum negotiating strength; the economics you leave open here tend to drift in the buyer’s favor during diligence.

Step 3: Due diligence

Once the LOI is signed, the buyer sends a request list and the seller populates a data room. Expect requests covering corporate records, contracts, financials, tax, employees, intellectual property, litigation, insurance, and regulatory matters. The seller’s job is to answer accurately and completely, because everything disclosed now becomes part of the disclosure schedules that qualify the seller’s representations later. Anything hidden and discovered after closing becomes an indemnity claim, or worse.

Sellers should run their own diligence on the buyer at this stage: proof of funds or a financing commitment, the buyer’s track record on closing, and, in an earnout deal, the buyer’s plans for running the business.

Step 4: The purchase agreement and ancillary documents

The purchase agreement (an asset purchase agreement or a stock or membership interest purchase agreement) turns the LOI into enforceable terms. The major negotiated sections are the purchase price mechanics (working capital adjustment, escrow, earnout), the representations and warranties with disclosure schedules, the indemnification package, the covenants between signing and closing, and the closing conditions. Our post on reps, warranties, and indemnification covers the section that will occupy most of the negotiation.

Alongside it come the ancillary documents: a bill of sale and an assignment and assumption agreement in an asset deal; stock powers or assignments of membership interests in an equity deal; intellectual property assignments; employment, consulting, or retention agreements for key people; a noncompete and nonsolicitation from the seller; a transition services agreement if the seller will support operations for a period; and escrow instructions. CLP’s contract drafting and negotiation team drafts these in parallel so closing is not held up by a document nobody started.

Step 5: Closing conditions and the closing itself

Signing and closing can happen the same day or weeks apart. When they are separate, the gap exists to satisfy conditions: third-party consents to assign key contracts or leases, regulatory approvals or license transfers, lender payoff letters and lien releases, required notices to employees, and, in larger transactions, antitrust filings with the FTC and the Department of Justice if the deal size crosses the thresholds that adjust each year. The seller usually covenants to operate in the ordinary course during this period.

At closing, the parties exchange signatures and funds, the buyer takes control, and the escrow is funded. A closing checklist, maintained by counsel from the day the purchase agreement is signed, is the only reliable way to make sure every deliverable is in hand.

Step 6: After closing

The deal is not over at closing. Within a stated period, the buyer prepares a closing balance sheet and the working capital adjustment is settled. If there is an earnout, the seller tracks the metrics and the buyer’s compliance with any operating covenants. The indemnity survival period runs, and the escrow is released in stages as it expires. In an asset deal, the seller winds down the selling entity, files final tax returns, and distributes the proceeds.

Sellers who stay involved as employees or consultants should understand that their relationship with the business has changed: they now work for the buyer, under an agreement with its own term and termination provisions. Those agreements, and the noncompete that usually accompanies them, are reviewed by the same business and corporate law group that handled the sale.

If you are planning to sell your business, a consultation with Capitol Law Partners can map the steps for your company and identify what to fix before buyers look. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

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