Our corporate governance, board minutes, and legal contracts have been handled informally for years. Why do we need to start cleaning up this corporate hygiene so far in advance of an actual transaction?

Question

Tyler Smith · Accepted Answer

Many owners believe they can clean up their corporate governance and legal contracts during the due diligence phase of a sale. This is a costly mistake. Poor corporate hygiene is one of the primary reasons deals fall apart or get delayed, and delays always favor the buyer.

When a sophisticated buyer conducts due diligence, they will scrutinize every board meeting minute, customer contract, and equity agreement from the last several years. If they find missing signatures, poorly documented board resolutions, or ambiguous ownership of intellectual property, they will either walk away or use these deficiencies to aggressively discount your purchase price.

Cleaning up these issues requires a long runway because it takes time to track down historic documents, formalize unsigned contracts, and establish a clean paper trail. Start by making corporate compliance a priority today. Ensure your Accountability Chart clearly designates who is responsible for legal and regulatory compliance.

Work with your legal counsel to audit your corporate records, standard customer agreements, and vendor contracts. By establishing rigorous governance habits early, you protect your valuation and ensure a smooth, low stress due diligence process when the time comes to sell.