Smith Holland M&A Resources  

The key documents to review when selling your business.

There are many legal documents involved when selling (and buying) a company. Depending on the structure of your business, these agreements can be very confusing and complicated. Most business owners who are selling a company tend to think of only non-disclosure agreements (NDAs), letter of intents (LOIs) and purchase agreements. Unfortunately, there are many important documents surrounding middle market mergers and acquisitions (M&A) deals and it is crucial for all business owners to be prepared and understand the severity of each legal agreement before they decide to sell their company.


Listing Agreements

Once the decision has been made to sell a company, the first legal document a seller will receive is a listing agreement from an M&A firm. A listing agreement includes general information regarding the terms and conditions between the M&A firm and seller. The commission and fee, exclusivity clauses and termination clauses will be included in this important document.


An M&A firm charges a commission to sell your company and the fee agreement defines compensation. While not every M&A firm is the same, normally the commission or payment includes an upfront non-refundable deposit and/or a percentage of total purchase price at the end of successful closing. Although some M&A firms do not charge an upfront deposit or retainer to list a company on the market, most firms do require a payment once a listing agreement is signed. M&A firms spend days and weeks getting a company ready for the market and then spend months, even years depending on the size of transaction, trying to sell it. Requiring a non-refundable deposit upfront ensures the seller is serious about selling the business.


In addition to fee structure, the listing agreement will also include exclusivity clauses and terms. Due to the fact that M&A firms are dedicating countless hours to marketing a company for sale, exclusivity clauses are standard on all listing agreements. Real estate agents require exclusivity clauses when selling a house and it’s no different from M&A firms who sell businesses. Of course, there will terms and length of agreement, but during this time an M&A advisor will be organizing an offering memorandum, interviewing potential buyers, discussing offers, assisting with purchase agreements and preparing for a sale. Sellers should not hesitant to sign an exclusivity clause as the amount of work required is warranted and almost all reputable M&A firms require an exclusivity.


Also included in the listing agreement will be a termination clause, which simply describes how the listing agreement can be terminated by both parties. More importantly though, this document includes language that protects the M&A firm should the company be sold to a buyer originally introduced by the firm. This means if a buyer originally introduced by the firm purchases the same company years later, the M&A firm will still be awarded some sort of fee or compensation.


Confidentiality Agreements and Letters of Intent

After the company is listed for sale on the market, M&A advisors will have prospective buyers sign confidentiality or non-disclosure agreements to protect the seller. Since financial documents and company operations are revealed during the sale of a business, M&A firms will require buyers to sign NDAs that ensure all parties understand that discussions, terms and proprietary information is sensitive and will remain in confidence. This is why M&A firms are so critical because sellers need to protect themselves from competitors and untrustworthy individuals looking to steal confidential information for their benefit.


Once a buyer has signed an NDA, the next important document will be a letter of intent. An LOI in its simplest form includes the overall pricing, closing date, terms and conditions presented by a buyer for the purchase of a seller’s company. Even though an LOI is non-binding, it is one of the most important legal documents of the deal life cycle since this framework will eventually become a purchase agreement. M&A deals fall apart for a number of reasons but the most common involves an unprofessionally written or inefficiently structured LOI. This is why it is vital to have a trusted business broker on your team and important to recognize and negotiate terms that are favorable to the seller.


Merger, Stock and Asset Purchase Agreements

While each M&A transaction is different, every deal will encompass a principal agreement that includes a merger agreement, a stock purchase agreement and the most common, asset purchase agreement. These titles can vary slightly but the categories will remain the same. For a seller, this purchase agreement will be the last and most important legal document signed.


A merger agreement is simply one company merging with another. These agreements are typical in M&A deals and take place when company “A” purchases company “B” which changes operational structure since company “A” is taking control over both. Merger agreements include legal documents such as the cancellation of company “B” shares, payment of purchase price to company “B” shareholders, filing of one or more certifications of merger with state, contains covenants, regulatory filings and shareholder approval. There are also securities law compliance provisions and deal protection agreements.


Similar to merger agreements, stock purchase agreements (SPAs) take place when the ownership of stock changes hands with no merger. Stock purchase agreements include documents that focus on the transfer of stock, physical delivery of stock certificates, contain representations and warranties. These agreements are rarely used for the acquisition of 100% of any public company’s stock. Asset purchase agreements (APAs) obviously involve the sale of assets and rather than merging or transferring shares, these agreements simply state which assets and liabilities will be included with the sale. APA legal documents usually include assets, liabilities, bills of sale, intellectual property assignments, real property transfers, representations and warranties.



There are many important legal documents to be considered when selling your business. Listing agreements, non-disclosure agreements, letters of intent and purchase agreements are only a few of the documents a seller will encounter throughout the deal life cycle. These agreements can be complicated and confusing depending on the structure of the business. Every company owner should be prepared and understand these documents before selling a business and having an experienced M&A advisor on your team can help clarify these legal agreements once that decision has been made.

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