For many founders and business owners, selling a company is a once-in-a-career event. The buyer or its deal team has often completed many acquisitions before. That difference in experience shapes a sale from the beginning, before the owner recognizes which decisions are already being made.
The pattern is familiar. A buyer reaches out, or an investment banker or business broker brings an offer. The headline price is attractive. The owner signs a letter of intent (LOI) and then calls a lawyer to “paper the deal.” By then, many of the terms that shape the seller’s economic outcome are already framed.
When selling a business, the headline purchase price is only one part of the economic outcome. Debt payoff and transaction expenses, working capital adjustments, escrows and holdbacks, indemnification, earnouts, rollover equity, tax structure, and post-closing obligations can all affect the proceeds a seller ultimately receives.
Letter of Intent (LOI): Why Timing Matters When Selling a Business
A letter of intent is often described as non-binding, and many of its economic terms may be non-binding. Its practical effect can still be significant. LOIs commonly include exclusivity provisions that limit the seller’s ability to talk with other potential buyers for a period of time. Once exclusivity begins and diligence is underway, negotiating leverage can shift toward the buyer. Terms left vague at this stage may become harder for the seller to improve later.
Before signing, a seller should understand how the price will be paid: at closing, over time, or contingent on future results. The seller should also understand how much may be held back, how working capital will be measured, whether part of the proceeds must be reinvested in the buyer’s business, and what the owner is expected to do after closing. Each of these can materially affect what the seller ultimately receives.
Before exclusivity, a seller has options. After it, the seller has a negotiation.
From Purchase Price to What the Seller Actually Receives
The purchase price in an offer is a starting point. Several deal mechanics can affect what the seller receives at closing and what remains at risk afterward.
Cash-free, debt-free pricing. Many offers assume the business will be delivered without debt and without excess cash. Loans, lines of credit, and other debt-like items are typically paid off from the proceeds at closing, and transaction expenses, such as banker or broker fees and advisers’ fees, further reduce what the seller nets. What counts as “debt” is itself a negotiated definition.
Working capital adjustments. Many transactions assume the business will be delivered with an agreed or “normal” level of working capital. If the amount delivered at closing falls below the target, the resulting adjustment can reduce cash paid to the seller.
Escrows and holdbacks. A portion of the purchase price may be held back after closing to cover potential claims or other obligations. How much is held, for how long, what claims it secures, and when it is released are negotiated terms.
Indemnification. Representations and warranties and related indemnification obligations may survive closing. Caps, thresholds, baskets, survival periods, and other limitations can affect how much of the purchase price remains exposed after the sale.
Earnouts. Payments tied to future performance can bridge a valuation gap, but they also depend on how the acquired business is operated after closing. An earnout is only as good as its definitions: what is measured, how it is calculated, how accounting policies are applied, and what the buyer may or may not do during the earnout period.
For companies with outside investors, liquidation preferences and other investor rights may affect how sale proceeds are allocated among founders, employees, and investors.
The headline price is where the negotiation starts. What the seller ultimately keeps depends on the mechanics.
Asset Sale vs. Stock Sale: Why Deal Structure Matters
Whether a business is sold through an asset sale or a stock sale can materially affect tax treatment and net proceeds. Buyers and sellers may have different preferences depending on entity type, tax profile, liabilities, and transaction objectives. In some circumstances, an asset sale can produce more than one level of tax, and the allocation of purchase price among assets can also matter. The right structure is transaction-specific, which is why tax advisers should be involved before key deal terms are fixed. State taxes matter too: California generally taxes capital gains at ordinary income rates and does not follow certain federal exclusions, so California sellers should model state tax separately.
Rollover Equity, Staying On, and Post-Closing Restrictions
Buyers may ask the owner to stay on as an employee or consultant, or to retain an economic interest through rollover equity in the buyer or a parent entity. Those arrangements can affect the seller’s role, compensation, liquidity, governance rights, and exposure to the buyer’s future decisions. They deserve attention alongside the purchase price.
The same is true of restrictions after the sale. California generally restricts non-compete agreements, but statutory exceptions can apply in connection with the sale of a business. Depending on the transaction and applicable requirements, sale-related restrictions may therefore be enforceable. Their scope, geography, duration, and practical effect should be evaluated against the owner’s post-closing plans.
Personal and Estate Planning Before a Business Sale
Some planning (such as transferring interests to family members or trusts, or restructuring ownership before transaction value becomes fixed) may be more effective if considered before a sale process advances. As a transaction becomes more concrete, some strategies may become less available or less useful. Owners considering a sale should coordinate legal, tax, and personal planning early rather than waiting until closing.
Preparing a Business for Sale Before Due Diligence
Issues discovered during buyer diligence can create requests for price adjustments, escrows, special indemnities, or other protections. Issues identified by the seller in advance may be easier to address or disclose in an orderly way. Organized records, a clear picture of contracts requiring consent, an early review of licenses or permits that may not transfer automatically, and clean ownership documentation can make diligence more efficient and reduce avoidable surprises.
When to Involve Legal Counsel in Selling a Business
For many sellers, the best time to involve transaction counsel is before signing an LOI, and ideally before the business goes to market or serious buyer discussions begin. At that stage, counsel can help frame the structure, process, and negotiating priorities before key economic terms begin to harden.
Experienced buyers and acquisition teams know which terms matter and structure the process around them. Closing that experience gap does not require matching the buyer’s resources. It requires counsel who understands how experienced buyers structure, price, diligence, and negotiate acquisitions (which terms are genuinely market and which are merely described that way) and who is involved while meaningful choices remain open.
Crossbridge Law Group is a transactional boutique based in Irvine, California, advising companies, founders and business owners, executives, investors, and select private clients on business transactions, outside general counsel, cross-border, strategic advisory, and private client matters. David Y.K. Kim is the firm’s Principal Attorney. He previously practiced at A&O Shearman, served as in-house counsel at Merrill Lynch, and worked as an investment banker at J.P. Morgan. He is a graduate of Harvard Law School. His practice includes advising business owners and founders on the sale of their companies, with attention to deal structure, post-closing economics and obligations, and personal planning considerations that can affect what a seller ultimately keeps.
