You’ve decided to sell in the next year, and your banker tells you to get the company ready. Many founders hear that as a cleanup of the financials and the pitch deck.

In reality, the buyer’s lawyers and accountants will test every document behind your numbers. This article describes what to look for before your buyer goes through everything with a fine-tooth comb. Seemingly little, unimportant matters such as an unapproved option grant, a customer contract that needs consent, or uncollected sales tax can mean a lower purchase price, a bigger escrow holdback, or a dead deal. I’ve been a software founder twice and now practice as an acquisitions lawyer, and this is the sell-side due diligence checklist I run with sellers.

What Is Sell-Side Due Diligence?

Sell-side due diligence is the investigation you, as the seller, run on your own company before you go to market, using the same lens the acquirer’s lawyers, accountants, and engineers will use later. The point is to find problems while you still control the timing, the fix, and the explanation.

Two related terms often get mixed up with it:

Most founder-led sales I work on use the first column: a review run by the founder, the company’s lawyer, and its accountant, which then feeds a clean data room.

When Should You Start Your Sell-Side Review?

Start earlier than feels necessary. By the time you countersign an LOI, I’d put the deal at about 90% decided, and exclusivity hands the calendar to the buyer.

Here is the order I give founders:

1. 1Twelve months out: run the legal and tax workstreams first, since intellectual property (IP) assignments, third-party consents, and stockholder issues take the longest to fix.
2. 2Six months out: commission a sell-side quality of earnings (QoE) report if you expect private equity or larger strategic buyers, and fix what it turns up.
3. 3Ninety days out: finish the disclosure list, confirm who must approve the sale, and load the data room.
4. 4At the LOI: use what you found to negotiate structure, escrow, and closing conditions before you countersign.

If an LOI is already in your inbox, run the same sequence in a few weeks and start with approvals and consents.

Who Should Run Each Part of the Review?

A sell-side review is a team effort, but each workstream needs one owner who answers for it.

Two notes from my side of the table. Have your lawyer engage the legal review so the findings have the best chance of staying privileged (more on that below), and choose counsel sized to your deal, which I cover in my guide on whether you need a lawyer to sell.

What Belongs on a Sell-Side Due Diligence Checklist?

Each table lists what to check, the red flag a buyer’s team looks for, and the fix to make before launch. Mark every row as done, disclosed, or does not apply.

1Corporate Records and Sale Approvals

Start here, because a sale that was not properly approved cannot close. For most deals, the Delaware General Corporation Law (DGCL) sets these baseline votes:

• ●A merger: a board resolution approving the merger agreement, plus a yes vote from stockholders holding a majority of the shares entitled to vote.
• ●A sale of all or substantially all assets: a board resolution approving the asset sale, plus the same stockholder majority, under Section 271.

The approval rows surprise founders more than any others. A protective provision you agreed to at your seed round can give one investor a practical veto over your exit, so find it a year early.

2Cap Table and Equity Promises

Your cap table decides who gets paid at closing, so the buyer’s lawyers rebuild it from the signed documents.

3Intellectual Property Chain of Title

For a software company, the code is often the main asset a buyer is acquiring. The chain of title has to run from every person who built the product to the company, and I explain how acquirers test it in my article on managing IP risk in acquisitions.

4Customer, Vendor, and Partner Contracts

Buyers are paying for revenue that keeps coming in after closing, and they comb through your contracts for anything that could cut it off.

Most of these are cured by obtaining the counterparty’s written consent to the assignment, and some agreements limit the right to refuse by saying consent “may not be unreasonably withheld.” Instead of an assignment, a buyer can also end a customer or supplier agreement and sign a fresh one directly with that counterparty.

5Financial Statements and Quality of Earnings

The financial workstream proves that your revenue and earnings are what you say they are.

If an add-back cannot survive your own accountant’s questions, take it out before a buyer does.

6Tax Exposure

In a stock sale or a merger, the company’s past tax liabilities stay with the company after closing, so buyers price them, escrow for them, or ask you to fix them first.

Sales tax is the exposure software-as-a-service (SaaS) founders miss most often. In South Dakota v. Wayfair (2018), the Supreme Court overruled the physical presence rule, so a state no longer needs a seller to have offices or staff there before requiring it to collect sales tax, and some states tax software subscriptions.

Section 1202 of the Internal Revenue Code covers gain when a holder sells qualifying C corporation stock, so the structure of your deal affects what you keep. The exclusion is federal; California does not follow it, so a California taxpayer reports the full gain to the state.

I’m not a CPA, so on this workstream I work alongside the client’s tax advisor, and I can connect you with one if you need a referral.

7Employees, Contractors, and Change-of-Control Pay

People documents tell a buyer what the team costs and who it can keep, which matters if your exit depends on keeping key people after closing.

Golden parachute rules deserve their own line if your company is a C corporation. Under Internal Revenue Code Section 280G, sale-contingent pay to an officer, a larger stockholder, or a highly paid employee can become a parachute payment:

• ●The trigger: the person’s sale-contingent payments reach three times their base amount, which is their average annual compensation over the five most recent taxable years.
• ●The cost: the company loses its tax deduction for the excess, and the recipient owes a 20% excise tax on it under Section 4999.
• ●The private company fix: the payments can be exempted if, after adequate disclosure, holders of more than 75% of the outstanding voting power approve them, with shares held by the people receiving the payments left out of the count.
• ●The S corporation exemption: a company that would qualify as an S corporation is exempt, but a venture-backed company with preferred stock usually does not, since S corporation status allows a single class of stock.

The vote must actually decide whether each person gets the excess, so recipients typically waive it before the vote. Run the 280G numbers early, because the disclosure package takes time to prepare.

If you employ 100 or more people, check whether the federal Worker Adjustment and Retraining Notification (WARN) Act applies. Its regulations make the seller responsible for advance notice of a plant closing or mass layoff through the closing date, and the buyer responsible after that, so ask the buyer early about any planned layoffs.

8Privacy, Security, and Compliance

The United States has no comprehensive federal privacy law. SaaS companies answer to a patchwork of state laws, plus sector rules and, for users in the European Union (EU), the General Data Protection Regulation (GDPR). In California, that means the California Consumer Privacy Act (CCPA), as amended by the California Privacy Rights Act (CPRA).

9Litigation, Debt, and Insurance

The last workstream tells the buyer which claims and obligations will follow the business after closing.

How to Keep Your Legal Findings Privileged

A sell-side review produces candid notes about your company’s weak spots, and you want a say in who reads them after closing. Two Delaware rules set the stakes:

• ●The default rule: Section 259 of the DGCL vests the target’s “rights, privileges, powers and franchises” in the surviving corporation, and in Great Hill Equity Partners IV v. SIG Growth Equity Fund I (2013), the Court of Chancery held that this includes the attorney-client privilege over the seller’s pre-merger communications.
• ●The contract fix: in bioMerieux v. Rhodes (2024), the Delaware Superior Court enforced a merger agreement clause keeping the privilege over merger-related communications with the selling securityholders.

Three steps protect you:

1. 1Run the legal review through your lawyer. Findings memos written to give you legal advice have the strongest claim to privilege, while spreadsheets passed around the team have a weaker one.
2. 2Keep privileged material off shared company systems where you can. In a merger, the surviving company keeps the email accounts and drives after closing.
3. 3Negotiate a privilege carve-out in the merger agreement. Ask for a clause that keeps privilege over deal communications with the sellers or their representative and limits the buyer’s use of anything it finds on company systems.

Privilege rules turn on the deal structure and the governing law, so confirm the approach with your counsel before the review starts.

What Should You Do With Each Finding?

How I solve this: before the LOI is signed, I sort every finding with the founder into one of three buckets.

• ●Fix it before sale. Missing IP assignments, unapproved grants, lapsed good standing, and unfiled returns usually take signatures and filings, so get them done.
• ●Disclose it. Anything you can’t fix, or fixed but the buyer will still care about, goes into the disclosure schedules, the list of exceptions to your representations and warranties.
• ●Negotiate around it. Larger exposures, such as an open tax position or a pending claim, become specific deal terms, covered in the next section.

My advice to sellers is to treat your disclosure schedules like an insurance policy: once a problem or potential liability is disclosed, the buyer can’t claim it didn’t know, so when in doubt, disclose it. Show the buyer everything up front, including the bad news, since a careful buyer is likely to find whatever you hold back.

A hidden problem makes the buyer ask “what else are you hiding?” and tends to return as indemnification claims against your sale proceeds. Full disclosure covers every problem; competitively sensitive data shared with a competing buyer and personal data about customers and employees still go through safeguards such as a clean team and redaction.

Which Deal Terms Should Your Findings Shape?

The headline price is what the buyer leads with; the terms decide how much of it you actually take home. Your findings tell you which terms to fight for.

If structure is still open, my article on choosing a stock purchase or asset purchase walks through the trade-offs. In an acquisition, the goal is to survive the structure, and your findings show you which structure you can survive.

Frequently Asked Questions

Founders tend to raise these once their own review is underway.

Run the Buyer’s Review Before the Buyer Does

A sell-side due diligence checklist takes the surprises out of your own sale. Work through the nine workstreams, fix what signatures and filings can fix, disclose the rest, and walk into the LOI knowing which terms your findings should shape.

If you plan to sell in the next year, the best day to start is before a buyer asks for anything.