Legal diligence reads the paper. Its purpose is to establish that you own what you are selling, that the contracts do what you say they do, and that nothing in the company's history is going to become the buyer's problem after closing.
Get quotes to sell my business
Legal due diligence checklist: title and corporate record
Who owns the equity, whether any options or promises exist, whether the minute book supports the decisions taken, and whether the company is in good standing everywhere it trades. In small companies this is the section most often incomplete, and it is entirely fixable in advance, which is why finding it during exclusivity is such an avoidable cost.
Contracts and consents
Customer and supplier agreements, the lease, licenses and permits, loan and finance documents, and every change of control or assignment clause in them. Each clause that lets a counterparty terminate or renegotiate on a sale is a consent to obtain and a risk the buyer will price. Identifying them yourself, early, is a morning's work with the contract file.
Claims, compliance and people
Litigation open, threatened or recently closed. Regulatory contact. Employment terms, classification of contractors, and restrictive covenants. Intellectual property ownership, including assignments from anyone who built anything for you. The findings arrive as warranties, indemnities and sometimes as conditions to be satisfied before closing.
Questions people ask about legal due diligence
Does my lawyer do this or the buyer's?
The buyer's lawyer runs it and yours responds. In a vendor exercise your lawyer reviews the same ground first so the findings are yours before they are theirs.
What is the most common problem?
An incomplete corporate record, followed by intellectual property that was never formally assigned to the company.
How do legal due diligence report findings affect the agreement?
They become specific warranties, indemnities, price adjustments or closing conditions. A disclosed and understood issue is far cheaper than a discovered one.