Our historical corporate records, equity agreements, and board minutes are a disorganized mix of informal emails and verbal handshakes. What specific corporate governance and compliance signals must we clean up on our runway to pass a buyer's legal due diligence?

Question

Tyler Smith · Accepted Answer

A buyer's legal team will dissect your corporate history with a microscope. Disorganized corporate governance signals that your business is run like a hobby, not an institutional asset, which gives the buyer an excuse to demand indemnification escrows or chip away at the purchase price. To pass this test, you must systematically clean up your legal house at least twelve to twenty-four months before going to market.

Focus on cleaning up these critical corporate compliance signals:
- Audit your capitalization table to ensure every share, option, or phantom equity promise ever made to an employee or early adviser is documented with signed, legally binding agreements.
- Secure formal, signed board of directors and shareholder resolutions for every major business decision made over the last five years.
- Verify that your business is in good standing in every state where you have physical operations, remote employees, or significant sales to resolve any outstanding sales tax nexus issues.
- Ensure all intellectual property, including proprietary software, trademarks, and trade secrets, is formally owned by the corporate entity and backed by signed employee and contractor IP assignment agreements.

Cleaning up these compliance signals proves to a buyer that your corporate foundation is solid, reducing deal risk and accelerating the path to closing.