Most business owners spend years building value. Far fewer spend time protecting it, encountering problems because of legal and documentation issues that could have been addressed years earlier.
Recently, our Exit Planning Series hosted attorney David Dunning of Bourland, Wall & Wenzel, who delivered an outstanding presentation on preparing a business for sale. Drawing on decades of experience representing buyers, sellers, and privately held companies in mergers and acquisitions, David walked attendees through a comprehensive checklist of issues that can impact valuation, delay a transaction, or even cause a deal to fail.
His presentation covered nearly twenty separate areas of legal, financial, operational, and structural readiness. Since I did not have the opportunity to ask David which issues he encounters most frequently in transactions, I began reflecting on a different question: Over the years, what issues have I heard business owners, advisors, and experts discuss most often around TAB boardroom tables when preparing a company for transfer?
The five legal areas discussed below are my observations, not David’s rankings. They represent the issues that seem to surface repeatedly in conversations with business owners, accountants, attorneys, valuation professionals, and M&A advisors. While every transaction is different, these are among the legal concerns that often appear capable of reducing value, slowing a closing, or creating unexpected obstacles during due diligence.
1. Unclear Ownership Documentation One of the fastest ways to create uncertainty in a transaction is to have incomplete ownership records.
Many owners assume they know who owns the company and in what percentages. Unfortunately, buyers need more than assumptions. They need documentation.
Over time, businesses often experience ownership transfers, partner buyouts, inherited interests, and informal agreements that were never properly documented. Missing operating agreements, unsigned amendments, incomplete stock records, or unresolved ownership disputes can significantly delay a transaction.
A buyer cannot purchase what a seller cannot clearly prove they own.
Before beginning a sale process, owners should ensure their organizational documents are current, ownership records are complete, and all prior ownership changes have been properly documented.
2. Contracts That Cannot Be Transferred Many owners assume customer contracts automatically move to a new owner. That is not always the case.
A buyer may believe they are acquiring a valuable customer relationship only to discover the contract requires customer consent before it can be assigned. The same issue can arise with vendor agreements, leases, franchise agreements, software licenses, and other critical contracts.
In some cases, the buyer must obtain approval from dozens of customers or vendors before the transaction can close. Imagine learning that your largest customer contract—the very contract supporting much of your company’s valuation—cannot legally transfer without approval. That is not a conversation any owner wants to have while under contract.
Reviewing contracts years before a planned exit can help identify and address these risks before they become transaction obstacles.
3. Employment Law and Human Resource Issues People are often a company’s greatest asset. They can also become one of its greatest liabilities. During due diligence, buyers typically examine worker classifications, payroll practices, overtime compliance, employee documentation, and other employment-related matters.
Misclassified independent contractors, wage-and-hour violations, missing employment records, or incomplete I-9 documentation can create unexpected liabilities.
Buyers understand that unresolved employment issues can result in lawsuits, government investigations, penalties, and future claims. As a result, many buyers either reduce their purchase price, require escrow holdbacks, or demand additional seller protections.
Owners should view employment compliance as an investment in business value, not simply an administrative obligation.
4. Intellectual Property That Is Not Properly Owned In today’s economy, intellectual property often represents a significant portion of a company’s value. Unfortunately, many businesses discover too late that they do not legally own what they thought they owned.
Consider a company whose software was developed by an outside contractor years ago. If there is no written assignment agreement transferring ownership rights to the company, the contractor may still possess legal rights to the software.
The same issue can arise with trademarks, copyrights, proprietary processes, marketing materials, and product designs. Buyers increasingly scrutinize intellectual property ownership because they want certainty that the assets they are purchasing belong to the company. Protecting intellectual property is not just a legal exercise. It is a value-protection exercise.
5. Tax Problems That Surface During Due Diligence Few things create anxiety during a transaction like discovering unresolved tax issues. Buyers routinely review several years of tax returns and related filings. Questions often arise regarding payroll taxes, sales taxes, state filing obligations, and entity tax elections.
In some cases, the issue is not intentional wrongdoing. It may simply be an oversight that occurred years earlier. Unfortunately, tax authorities generally do not care whether the mistake was intentional. What may appear to be a minor issue can quickly become a purchase-price adjustment, escrow requirement, or negotiation obstacle. Regular reviews with qualified tax advisors can help identify problems before buyers do.
The Bigger Lesson The common theme behind all five issues is simple. Most are not created when an owner decides to sell. They are created years earlier.
The strongest exits are rarely the result of last-minute preparation. They are built through years of disciplined management, sound governance, accurate records, and proactive planning. Business owners often focus on growing revenue, increasing profits, and serving customers. All are important.
But owners who hope to transfer their businesses successfully should devote equal attention to the legal and structural foundation of the enterprise. Because when the day comes to sell, buyers are not simply purchasing earnings. They are purchasing confidence. And confidence is built long before the business goes to market.
About the Author Ed Riefenstahl is the co-owner of The Alternative Board (TAB) Fort Worth and West, where for over 20 years he has facilitated peer advisory boards and works with business owners to improve performance and prepare for successful exits. He previously served as Director of the MBA Consulting Program at Texas Christian University’s Neeley School of Business, where he founded and led Neeley & Associates Consulting.
About The Alternative Board (TAB) Fort Worth The Alternative Board (TAB) Fort Worth provides peer advisory boards and executive coaching for owner-led businesses and leaders of nonprofit organizations. Each board brings together a small group of non-competing business owners who meet monthly in a confidential setting to share real-world experiences, challenge assumptions, and improve decision-making. TAB members also utilize strategic tools and frameworks designed to help align leadership teams, execute priorities, and build more transferable, valuable businesses over time.
Upcoming Executive Session for Building a Business That Transfers Optimally: What Owners Must Work to Get Right 3–5 Years Before Exit
Building on the themes of internal readiness and execution discipline, The Alternative Board Fort Worth & West will host its next executive luncheon on Wednesday, September 16, featuring Ms. Anne Salick, Senior Director, Personal Planning and Business Strategies, CEPA, CPFA, Sandene Strategies. See https://www.linkedin.com/in/annesalick/ Anne’s session will focus on Protecting and Enhancing Wealth & Assets: Before, During, and After Exit. For inquiries regarding potential attendance, contact Ed Riefenstahl at eriefenstahl@tabfortworth.com
