Why does corporate structure and the cap table matter in a sale?

A clean, documented cap table free of phantom equity, undocumented minority interests or side agreements lets a buyer proceed to an LOI. Disputed ownership or unclear intercompany arrangements will stop a deal until resolved.

What IP ownership issues do buyers flag in diligence?

Buyers require that all material IP, including software, trade secrets, brand assets and domains, is owned by the operating entity with executed assignments from founders and contractors. IP held personally or without work-for-hire agreements becomes a condition precedent to closing.

How do litigation and contingent liabilities affect a sale?

A clean legal history with no pending or threatened claims supports an efficient diligence process. Material undisclosed litigation or contingent liabilities surface in diligence, are treated as indemnified liabilities, and can prevent closing.

Do licenses, permits and regulatory compliance affect closing?

Current, transferable licenses held by the entity keep a buyer out of legal exposure at acquisition. Expired or improperly held licenses and compliance gaps lead buyers to require resolution or a price adjustment to absorb remediation.

Why is contract assignability important when selling a business?

Key customer, vendor and lease agreements confirmed assignable without consent let a buyer assume the revenue base at close. Anti-assignment or change-of-control clauses introduce timing risk and can impair the buyer's ability to finance the acquisition.

Horizon M&A Advisors

Confidential

Prepared March 2026

Exit Readiness Assessment · Section 5 of 5

Legal & Compliance Scorecard

An assessment of the five legal and compliance factors that buyers' counsel examines in diligence. Issues discovered after a letter of intent is signed are among the most common causes of deal retrades, price reductions, and failed closings.

Section 5 — Legal & Compliance

Scoring Key

Green — Buyer-ready (2 pts)

Yellow — Needs attention (1 pt)

Red — Significant gap (0 pts)

Click a column to record your rating.

Corporate Structure & Cap Table

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Ownership structure is clean and fully documented. The cap table is accurate, current, and free of phantom equity, undocumented minority interests, or side agreements. Entity formation documents, operating agreements, and any shareholder agreements are complete and current.	Corporate structure is generally in order but minor gaps exist — outdated operating agreements, informal equity arrangements, or undocumented transfers that will require legal cleanup before closing. These are resolvable but will require counsel engagement.	Material structural issues exist — disputed ownership, undocumented equity grants, multiple entities with unclear intercompany arrangements, or a cap table that does not reflect actual economic ownership. Buyers will not proceed to LOI without resolution.

Intellectual Property Ownership

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
All material intellectual property — proprietary software, trade secrets, brand assets, patents, and domain names — is owned by the operating entity, not by the owner personally. IP assignments from founders and contractors are documented and executed.	Core IP is owned by the company, but some assets — legacy software, domain names, or brand elements — may be held personally or through a related entity. These require formal assignment prior to closing and may require third-party consent.	Material IP is held in the owner's personal name, has not been formally assigned to the company, or was developed by contractors without proper work-for-hire agreements. Buyers' counsel will flag this as a condition precedent to closing.

Litigation & Contingent Liabilities

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
No pending, threatened, or reasonably anticipated litigation, regulatory actions, or material contingent liabilities exist. The business has a clean legal history and no undisclosed indemnification obligations or unresolved disputes with customers, employees, or vendors.	Minor disputes or resolved matters exist that will need to be disclosed. The matters are immaterial in size and have clear paths to resolution, but they will require disclosure in the reps and warranties and may result in limited escrow requirements at closing.	Material pending litigation, regulatory investigations, or contingent liabilities exist that have not been disclosed or resolved. These will surface in diligence, will be treated as indemnified liabilities by any buyer, and may prevent closing entirely depending on the severity.

Licenses, Permits & Regulatory Compliance

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
All required licenses, permits, and regulatory certifications are current, properly maintained, and documented. The business is in material compliance with applicable federal, state, and local regulations. Licenses are held by the entity and are transferable or re-issuable upon change of ownership.	Most licenses and permits are current but some are held personally by the owner or a key employee, requiring re-application or transfer approval upon close. Compliance is generally in order but minor gaps have not been formally remediated.	Licenses are expired, held improperly, or the business is operating without required permits. Regulatory compliance gaps exist that have not been addressed. Buyers face legal exposure upon acquisition and will not close without resolution — or will require significant price adjustments to absorb the remediation cost.

Contract Assignability

Green / 2 pts	Yellow / 1 pt	Red / 0 pts
Key customer contracts, vendor agreements, and the operating lease are reviewed and confirmed to be assignable to a buyer without requiring customer or third-party consent. Change-of-control provisions, if any, have been identified and are manageable.	Most contracts are likely assignable, but a formal review has not been completed. Some agreements may contain change-of-control provisions or anti-assignment clauses that will require customer consent prior to closing — introducing timing risk in the transaction process.	Key contracts have not been reviewed for assignability. Material customer or vendor agreements likely contain anti-assignment provisions. A buyer's ability to assume the revenue base at close is uncertain, which directly impairs their ability to underwrite and finance the acquisition.

Legal & Compliance Assessment Score

— / 10

8 – 10

Legal profile is clean. Buyers' counsel will move through diligence efficiently and is unlikely to surface issues that create retrade risk or closing delays.

5 – 7

Addressable issues identified. Engaging transaction counsel 12–18 months before a planned process allows time to remediate structural, IP, and contract issues without time pressure.

0 – 4

Material legal risk present. Issues of this severity discovered in diligence frequently result in price reductions, earnouts, or failed closings. Immediate legal counsel engagement is recommended.

Discuss your results with an advisor. A complimentary 30-minute strategy call with Dave Halvorson will help prioritize legal remediation steps, identify the right transaction counsel for your situation, and establish a realistic timeline for resolving structural issues before a sale process begins.

Schedule a Call

This document is provided for informational purposes only and does not constitute legal advice, a formal valuation, or an engagement to provide advisory services. All assessments are self-reported by the business owner and are not verified by Horizon M&A Advisors. Business owners should consult qualified legal counsel regarding any matters identified in this assessment. Results should not be shared with prospective buyers or used in connection with any transaction without the written consent of Horizon M&A Advisors.