By: Jordan Gerheim CEO – Outside Chief Legal LLC
Buying a small business can be a fast path to growth, but a shallow due diligence process can turn a promising deal into an expensive mistake. Legal due diligence helps you understand what you are really buying and what risks come with it.
Choose the Right Deal Structure
Very early, decide whether you are buying the company itself (stock or membership interests) or its assets.
- Asset purchases let you pick specific assets and often leave many liabilities behind, but may require third party consents and new contracts.
- Equity purchases are usually simpler operationally but mean you inherit more of the company’s history, contracts, and potential liabilities and claims.
Check Corporate and Ownership Records
Confirm that the seller has clean authority to sell and that ownership is what they say it is.
- Formation documents and amendments (articles, certificates, operating/LLC agreements, and bylaws).
- Ownership records (cap table, stock ledger, membership interests, options, warrants).
- Minutes, written consents, and key resolutions, including approval of the proposed sale.
Review Contracts, Leases, and Key Relationships
Contracts can often drive most of the value in a small business. Request to see:
- Customer contracts, vendor and supplier agreements, and important partner relationships.
- Commercial leases, including renewal options, assignment and sublease rights, and any personal guarantees.
- Loan agreements, security agreements, and guarantees that could survive the closing.
Employees, Contractors, and HR Issues
Employment problems can follow you after closing if they are not identified and addressed. Obtain:
- Employee list with roles, pay, and status (employee vs independent contractor).
- Offer letters, employment agreements, noncompete and non-solicitation agreements, and contractor agreements.
- Handbooks, policies, and any pending or threatened claims, grievances, or investigations.
Intellectual Property and Brand Assets
If the brand or technology is central to the deal, verifying intellectual property ownership is essential. Request and evaluate:
- Trademarks, service marks, copyrights, patents, domain names, and key social media handles.
- IP assignment agreements from founders, employees, and contractors to the company.
- Licenses in and out, including software and technology licenses and any restrictions on assignment.
Licenses, Permits, and Compliance
Regulatory gaps can delay or even prevent you from operating after closing. Acquire and analyze:
- Business, professional, and industry specific licenses and permits.
- Evidence that the business is in good standing with state and local authorities.
- Any regulatory audits, investigations, warnings, or consent orders.
Litigation, Insurance, and Other Liabilities
Legal due diligence should line up with financial review to capture the full risk picture. Obtain:
- Summary of past and present lawsuits, arbitration, administrative actions, and demand letters.
- Insurance policies (general liability, E&O, D&O, cyber, key person) and claim history.
- Liens, UCC filings, and other security interests that affect assets you plan to buy.
Business Litigation and Disputes
How Outside Chief Legal Helps Buyers
A strong due diligence process is not just about collecting documents; it is about understanding which issues matter for your goals and using that information to shape price, structure, and protections in the purchase agreement.
Outside Chief Legal helps buyers:
- Focus due diligence on the legal issues that matter most for the size and type of deal.
- Spot red flags early enough to walk away, reprice, or require stronger protections.
- Coordinate with your tax and financial advisors so legal structure supports the business case.
Outside Chief Legal serves as fractional or outside general counsel to growing businesses, handling deal strategy, legal review, and negotiation so owners and leadership can stay focused on running the company.
Outside Chief Legal LLC is a modern, forward-thinking law firm serving as fractional chief legal officers and outside general counsel for businesses and their owners. With over 200 years of combined litigation, in-house, general counsel and administrative legal experience, the firm delivers approachable, comprehensive counsel that blends legal expertise with practical business insight to help clients navigate ownership complexities with confidence. OCL is a trusted partner for founders, business owners, and leadership teams nationwide. Our team brings years of experience advising clients on entity selection, tax strategy, and the legal challenges that come with starting and scaling a business. Learn more about our firm, meet our team, or schedule a Risk-Free Strategy Session to talk with an attorney about how we can help your company.
