Before You Sign That Deal: The Steps Directors Shouldn’t Skip
Selling or acquiring a company is rarely a quick transaction. Many directors focus on valuation, timelines, and commercial terms, but the legal side of the deal holds just as much weight. Errors, delays, or gaps in preparation can cause long-term problems, some of which only surface after the deal has been completed. Careful planning and structured support can make a significant difference. Keep reading to find out more.
Be Clear on the Structure of the Deal
Every transaction is different. Some involve the sale of assets, others involve shares. The structure affects everything from tax treatment to ongoing responsibilities and liabilities. Directors often move forward without a detailed breakdown of what the buyer is actually purchasing, and this leads to confusion.
A share sale passes ownership of the business entity. That means any contracts, liabilities, or disputes go with it. In contrast, an asset sale allows the buyer to select specific elements, such as stock, equipment, or intellectual property. One approach might be cleaner than the other, depending on the company’s financial history and the buyer’s intentions.
Reviewing the structure early with legal and financial advisors allows for adjustments before due diligence begins. This avoids last-minute changes or, worse, a collapsed deal.
Know Who You’re Dealing With — and Prepare Accordingly
Every buyer has different motives and methods. Some are looking to absorb a competitor. Others are private investors planning to hold and resell. Directors often underestimate the effect this has on the deal process. A large corporate buyer will have a legal team and a clear process. A smaller acquirer might work less formally but request extensive warranties and earn-outs.
It helps to assess the other side’s structure. Are they a UK-based company, an offshore group, or backed by private equity? If regulatory approvals are needed, these should be factored into the timing and negotiation strategy. The personality and expectations of the counterparty matter just as much as their track record.
These complexities are where proper legal input becomes essential. Getting legal guidance from an experienced M&A lawyer early on ensures you’re positioned correctly from the start. They will flag risks, assess the buyer’s setup, and prepare protective terms tailored to the situation.
Address Risk Before Heads of Terms Are Signed
Once heads of terms are in circulation, many directors feel they’ve already committed. These early documents are usually non-binding, but they do set the tone and often influence how the rest of the deal unfolds. What’s agreed here can be hard to renegotiate later.
This is the stage where issues such as warranties, indemnities, and limitation periods should be discussed. Directors need to understand what they are guaranteeing, for how long, and under what conditions liability may arise. Assumptions are dangerous. The deal may seem straightforward, but once legal teams become involved, these protections become central to the negotiation.
Consulting advisers before the heads are finalised gives you more room to tailor protections. It also helps to identify any deal-breakers early, rather than investing time and resources into a deal that might ultimately be unworkable.
Handle the Transition (and the Details That Come WithIt)
Few buyers want to be left entirely alone once a deal completes. Most request a handover period, sometimes spanning months. Directors often agree to this without considering its practical implications. Vague promises to “help with transition” can lead to unclear obligations.
Clarify exactly what support will be offered. Will the seller be available for calls? Are they expected to attend meetings? Is there an expectation of continued client involvement? All of these points should be clearly outlined in the final agreement.
Staff communication is another key point. Who tells the employees, and when? This often requires joint planning between both parties. Poor messaging can lead to confusion and staff departures, ultimately impacting business continuity.
Finalise Terms With Precision
Legal agreements must align with commercial reality. Deals fall apart when documents are rushed or built from templates that don’t reflect the specifics of the transaction. It’s not about making the paperwork longer; it’s about making it accurate.
Pricing terms should include any adjustments based on final accounts or working capital, and payment timelines should be specified. Detailed criteria should back any deferred elements or earn-outs.
Disputes often arise from clauses that are too broad or poorly defined. For example, vague language around supplier introductions or operational responsibilities can create confusion post-sale. This is especially relevant in mergers and acquisitions where the handover period carries operational weight.
Before signing, each clause should be thoroughly reviewed to ensure it is clear, enforceable, and consistent with the agreed-upon terms. Directors benefit from reviewing the agreement with someone who can ask the right questions, not just from a legal perspective, but also from a practical one.
Take Control of the Outcome
Directors hold legal and fiduciary duties that don’t end once a deal is done. Decisions made during the sale process can carry personal exposure if things go wrong. That is why it pays to slow things down and make sure every angle is covered.
Those looking to sell, merge, or acquire should take the time to understand each step, ask the right questions, and bring in the right support. The deal you sign should reflect the deal you intended, nothing more, nothing less.
