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Tidying Up: The Legal Housekeeping Buyers Will Notice
When due diligence starts the Buyer and their advisers are going to be ‘kicking the tyres’ of the company and checking how it operates and if there are any operational issues. A well-oiled company not only signals that it is run properly but also could save time and costs during the due diligence stage by heading off issues before they arise. Below are some areas that I see causing grief during due diligence which could be addressed well in advance.
Statutory Registers
Statutory registers, such as the register of members, register of allotments and register of transfers, rarely hold up a sale by themselves. But out-of-date or inconsistent registers is one of the more common things a buyer’s solicitors flag during due diligence, and sorting out any discrepancies at that stage can slow things down and prompt further questions. Checking these registers are current, and consistent with what’s been filed at Companies House (and also ensuring what is filed at Companies House is correct), is a straightforward thing to do well before a sale process begins.
Change of control clauses
Many commercial contracts with customers, suppliers, landlords, or lenders include a change of control clause. This can give the other party the right to terminate or require consent the moment your company changes ownership. If one of your largest customer or supplier contracts includes this and nobody flags it until due diligence, that could be a genuine problem. A buyer is likely going to want this addressed prior to sale or some assurances from you that it will not result in a termination of that contract.
Employment matters
Are employment contracts up to date and consistent across the team? Right to work checks carried out properly? A buyer will ask, and anything unresolved tends to surface eventually. Better it surfaces now, on your terms, than mid-negotiation.
Who actually owns your IP?
This catches out more businesses than you'd think. If a director or shareholder registered a trademark personally rather than through the company, or a contractor built the website without a proper assignment of IP, the company may not own what it thinks it owns. Fixing this after a buyer's solicitors have spotted it could cost far more, in time and financially, than fixing it now.
Property and leases
If you lease your premises, check whether the lease requires landlord consent to assign (most relevant on an asset sale), or has its own change of control provisions. This is a common source of delay simply because nobody checked early enough.
Why it matters
None of these issues are usually deal breakers on their own. But due diligence isn't only about spotting problems, it's about forming a view of how well run the business is. A pile of small issues found late could erode trust and give a buyer leverage. Sorted early, they may barely register.
Every business is different and the above is a non-exhaustive list of areas worth reviewing before going to market, and does not constitute legal advice.
