How to Prepare a Company for Sale: The Legal Factors That Determine a Successful Deal

Selling a company is one of the most complex processes a business owner can face. Not because finding a buyer is difficult, but because most deals that fall through or close on worse terms than expected do so for reasons that could have been anticipated: unreliable financial information, a confusing corporate structure, contracts with problematic clauses or unresolved legal contingencies.

We call this the Exit Ready Test: a structured review of the legal factors that determine whether a company is genuinely prepared to undertake a sale process.

What is an Exit Ready Test and why does it matter?

When a buyer enters into a transaction, the first thing they do —or rather, what their legal and financial team does— is conduct due diligence: a comprehensive review of the company's actual state. Any issue that surfaces during this phase can result in a price adjustment, an additional warranty clause or, in the worst-case scenario, the collapse of the deal.

The Exit Ready Test anticipates that review from the seller's side. It is not about glossing anything over, but about identifying friction points in good time and resolving them before the buyer finds them. The outcome is twofold: the seller negotiates from a stronger position, and the process is executed with less friction and greater speed.

The key legal factors in a company sale

1. Financial information

Although financial information may seem like the domain of financial advisors or auditors, it has a direct legal dimension. Due diligence examines not only whether the numbers add up, but also whether the financial statements are properly documented, whether there is traceability between the accounting records and the underlying contracts, and whether there are financial commitments —such as guarantees, sureties or contingent liabilities— that are not properly reflected. Unreliable financial information or gaps in traceability not only generate mistrust: they can lead to valuation adjustments or to an expansion of the scope of warranties required from the seller in the sale and purchase agreement.

2. Corporate structure

A company's corporate structure is one of the aspects that can generate the most friction in a transaction. Groups with multiple companies, cross-shareholdings, incomplete prior reorganisations or unresolved tax inefficiencies are red flags for any buyer.

A clean, coherent structure facilitates the execution of the deal, shortens negotiation timelines and minimises indemnity clauses in the final agreement. In many cases, preparing for a sale involves a prior reorganisation of the group, which should be initiated well in advance.

3. Key contracts

Contracts with clients, suppliers, partners or key employees can directly affect the viability of the transaction. The prior legal analysis focuses on identifying:

1. Change of control clauses: present in many relevant contracts, these require the counterparty to be notified or to give consent in the event of a change of control of the company. Their activation can compromise the continuity of essential commercial relationships.
2. Critical dependencies: contracts whose loss would have a material impact on the business and which, therefore, the buyer will assess with particular attention.
3. Termination risks: notice periods, penalties or renewal conditions that may affect the perceived value of the company.

Mapping out the contractual landscape in advance makes it possible to negotiate from an informed position and avoid surprises in the final phase of the deal.

4. Regulatory compliance and legal contingencies

Compliance is, alongside financial information, one of the priority focus areas in any due diligence. Buyers seek to identify potential contingencies in tax, employment and regulatory matters that could materialise after the closing of the transaction.

Ongoing inspections, employment proceedings, unremedied regulatory breaches or inconsistencies in corporate documentation are all elements that, if not identified and managed in advance, may surface during due diligence with direct consequences for the price or the warranties required.

When should an Exit Ready Test be carried out?

The usual answer is: sooner than it normally is. An analysis of this kind loses much of its value if it is initiated once a buyer has already been identified and negotiation deadlines are pressing.

Ideally, it should be carried out at least six to twelve months ahead of the point at which the sale process is expected to begin. That margin allows not only for problems to be identified, but for there to be real time to resolve them.

Beyond the four factors

The aspects described in this article are those that most frequently shape company sale transactions. However, a complete Exit Ready Test goes further: it also includes the review of intellectual and industrial property, the status of real estate assets, sector-specific regulatory matters and existing shareholders' agreements, among others.

If you are considering a corporate transaction and want to know where your company stands, at navarro we can help you carry out that initial assessment.