You’ve built something great. Blood, sweat, and coffee-fueled all-nighters. And now there’s a potential acquirer at the table. Exciting? Definitely. Nerve-wracking? Absolutely. But before you pop the champagne, there’s one crucial thing you can’t overlook: legal readiness. Too many founders underestimate how much legal prep goes into selling a business. It’s not just about revenue or user growth it’s about clean, tight, and transparent documentation. Think of it as tidying up your startup’s legal house before inviting buyers to look around. Here’s a founder-friendly checklist to help you cover your legal bases before selling.
1. Cap Table Clarity
Before any sale, buyers want to know who owns what and how much.
- Ensure your cap table is up-to-date and accurate.
- Include all SAFEs, convertible notes, and equity grants.
- Clean up any odd or undocumented equity arrangements. Buyers hate surprises.
Pro tip: If you’ve had handshake agreements or informal equity promises get legal counsel to address them now.
2. IP Ownership
This one’s huge. If your startup’s IP isn’t clearly owned by the company, the deal could fall apart.
- Confirm that founders, employees, and contractors signed IP assignment agreements.
- Double-check any open-source licenses and make sure you’re compliant.
- Audit any third-party integrations that could complicate the sale.
3. Employee & Contractor Agreements
Are all team members legally documented?
- Make sure all employees have signed offer letters or employment agreements.
- For contractors: make sure you have clean scopes of work and payment records.
- Review any non-compete or confidentiality clauses some acquirers care a lot about these.
4. Customer Contracts & Revenue Documentation
If you have recurring revenue, clean contracts will boost your valuation.
- Ensure all customer agreements are properly signed and stored.
- Review termination clauses and renewal terms.
- Be prepared to disclose any major customers or potential churn risks.
5. Clean Financials & Taxes
No one likes messy books.
- Have at least 2 years of financial records, cleanly categorized (ideally via software like QuickBooks or Xero).
- Pay any outstanding business taxes or filings.
- Bonus points: have your accountant create a due diligence-ready financial summary.
6. Compliance Check
Depending on your industry, buyers may expect you to be compliant with:
- GDPR, CCPA, or other privacy laws
- SOC 2 or similar security frameworks (especially for SaaS)
- Any relevant licenses, trademarks, or industry-specific regulations
7. Shareholder & Board Approvals
Before you close a deal, you’ll need sign-off from:
- Your board of directors
- Your major shareholders
- Possibly, your investors, depending on your funding terms
Read through your incorporation docs and term sheets to understand what level of approval is required for a sale.
Bonus: Prepare Your Data Room
This is the digital folder of your startup's soul. Include:
- Your cap table
- Financial statements
- Contracts
- Legal docs
- IP assignments
- Product architecture docs (if relevant)
Organized founders move deals forward. Disorganised founders delay or kill deals.
Final Thoughts
Selling your startup is a huge milestone but it’s also a legal minefield if you’re not prepared. The earlier you get your legal house in order, the smoother and more lucrative the exit will be.Talk to a startup attorney. Use this checklist. Keep everything clean and transparent. You’ve built something great now make sure it exits just as beautifully.