The LOI Is Not the Starting Line
Most founders treat exit planning as something that begins when a letter of intent lands in their inbox. By that point, the legal preparation window has already closed. Buyers do not just diligence your financials, they also diligence your corporate records, your IP chain of title, and your cap table structure, and what they find there directly affects the price they are willing to pay.
Real exit planning starts twelve to twenty-four months before you intend to sell. That is not a sales pitch. It is how long it actually takes to clean up the kinds of issues that buyers use as renegotiation leverage during diligence.
Clean Cap Tables and IP Assignments Are the First Thing Buyers Check
Two categories of issues come up more than any other during buyer diligence. The first is equity. Confirm that every share and option outstanding was authorized under the charter at the time of issuance, that you haven’t exceeded the authorized share count for any class or series, and that preferences, conversion ratios, and anti-dilution provisions were applied correctly along the way. A capitalization table that doesn’t reconcile to your actual board-approved issuances is a red flag that invites a full recount when you can least afford the delay. The second is unassigned intellectual property, meaning code, designs, or product work created by early contractors or employees who never signed a formal IP assignment agreement.
Either issue can stop a deal cold or trigger a price renegotiation in the final weeks of diligence, when you have the least leverage to push back.
Good Corporate Hygiene
Buyers and their counsel will comb through your corporate records before closing, so the time to clean house is now, not during diligence. Every material corporate action—option grants, new financings, officer appointments, amendments to governing documents—should be backed by a validly adopted board resolution or written consent, properly signed and dated,
The same goes for stockholder approvals: anything requiring a stockholder vote under your charter, bylaws, or state law (charter amendments, certain issuances, mergers) needs a corresponding consent or meeting minutes on file. Gaps here aren’t just cosmetic; unauthorized board action can render the underlying transaction voidable and become a real point of leverage for a buyer to chip away at price.
Drag-Along and Tag-Along Rights: Structure This Before You Need It
Drag-along rights let a majority of shareholders force minority shareholders to join an acquisition on the same terms, preventing a single holdout from blocking the deal. Tag-along rights give minority shareholders the right to join a sale on the same terms as the majority, protecting them from being left behind.
Both provisions need to be in your governing documents well before an acquisition conversation starts. Trying to add them once a buyer is at the table gives every shareholder leverage to negotiate terms that have nothing to do with the deal itself.
Section 1202: The Tax Planning Window Most Founders Miss
Qualified Small Business Stock under Section 1202 can allow founders and early investors to exclude a significant portion of gain from federal tax when the stock is sold, provided specific holding period and eligibility requirements are met. Because eligibility is tied to how and when the stock was issued, this is not something you can retroactively fix once an acquisition is already underway. QSBS optimization is a planning decision, not a closing-week discovery.
A Deal We Watched Slip
We have seen a multi-million dollar acquisition delayed by months, well past the buyer’s original closing target, because IP assignments from the company’s first year of operation were never completed. Every contractor from that period had to be tracked down and asked to sign assignment paperwork retroactively. Some could not be located. That gap became a line item in the final negotiation.
The Bottom Line
Exit planning is legal infrastructure work, and infrastructure takes time to build correctly. If you are two or more years from a potential sale, that is exactly when this work should start, not when a buyer shows up.
Faison Law Group runs pre-M&A legal readiness reviews for founder-led and venture-backed companies. Book a call to find out where your records stand today.
Frequently Asked Questions About Exit Planning
When should I start planning my exit?
Twelve to twenty-four months before you intend to sell. That’s how long it actually takes to clean up the cap table gaps and IP issues that buyers use as renegotiation leverage.
What do buyers look at first during diligence?
Cap table accuracy and IP chain of title come up more than anything else. Gaps in either one can stall a deal or trigger a price renegotiation in the final weeks.
What are drag-along and tag-along rights?
Drag-along rights let a majority of shareholders bring minority holders into a sale on the same terms. Tag-along rights protect minority holders by letting them join the sale under those same terms. Both need to be in place before a buyer is at the table.
What is Section 1202 QSBS?
It’s a tax provision that can let founders and early investors exclude a significant portion of gain on qualifying stock. Eligibility depends on how and when the stock was issued, so it has to be planned for, not fixed after the fact.
What happens if my IP was never formally assigned?
It can become a serious problem during diligence. Work created by contractors or employees who never signed an assignment agreement may not legally belong to your company, and tracking people down retroactively can delay or derail a deal.
Does this article create an attorney-client relationship or offer investment advice?
No. Reading this article does not create an attorney-client relationship with Faison Law Group, and nothing here constitutes legal or investment advice, nor an offer or solicitation to buy or sell any security. If you have specific governance questions about your company, contact Faison Law Group directly at (667) 213-6640 or through the firm’s contact page so the firm can evaluate whether an engagement is appropriate.