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Buying or selling a small or mid-sized business is one of the most significant transactions an owner will ever go through — and it involves a lot more legal groundwork than simply agreeing on a price. Here’s a practical checklist of what to get right before you close.

1. Decide on Deal Structure Early

Will this be an asset purchase (buying specific assets and liabilities of the business) or a stock/membership interest purchase (buying ownership of the entity itself)? The structure affects tax treatment, which liabilities transfer to the buyer, required third-party consents, and how existing contracts and licenses are handled. This decision shapes almost everything else in the deal and is worth getting right from the start.

2. Conduct Thorough Due Diligence

Before committing, a buyer needs a clear picture of what they’re actually acquiring: financial statements and tax returns, material contracts, outstanding litigation or disputes, intellectual property ownership, employee agreements and classifications, real property leases, and any regulatory licenses the business depends on. Due diligence gaps are one of the most common sources of post-closing disputes — problems that surface after the deal closes are far more expensive to unwind than issues caught beforehand.

3. Get the Letter of Intent Right

A letter of intent (LOI) outlines the key deal terms before the parties invest in full due diligence and definitive documents. While often non-binding on price and structure, LOIs frequently include binding provisions — exclusivity periods, confidentiality, and cost allocation — that carry real consequences if you later walk away from the deal.

4. Negotiate Representations, Warranties, and Indemnification

The purchase agreement’s representations and warranties are the seller’s factual promises about the business — that the financials are accurate, there’s no undisclosed litigation, taxes are paid, and so on. The indemnification provisions determine what happens if one of those turns out to be false: how long the buyer can bring a claim, whether there’s a cap on the seller’s liability, and whether part of the purchase price is held back in escrow to cover potential claims.

5. Address Employees and Key Contracts

Will employees be retained, and under what terms? Do key customer or vendor contracts require consent to assign, and will the other party actually agree? Losing a critical contract or key employee during the transition can undermine the value of the deal even after a successful closing.

6. Plan for Post-Closing Obligations

Many deals include a transition period, non-compete and non-solicitation agreements for the seller, earnout provisions tied to future performance, or ongoing consulting arrangements. These terms need to be documented as carefully as the purchase price itself — vague transition terms are a common source of post-closing friction.

Work With a Torrance Business Law Attorney

At U. Khan Law Firm, APC, we guide California business owners through the legal side of buying and selling companies — from structuring the deal through closing and beyond. Contact our office before you sign a letter of intent.

This article is provided for general informational purposes only and does not constitute legal advice. Every transaction has its own risks and requirements — please consult a licensed California attorney before proceeding.