For many business owners, exit planning is something to think about “one day”. The focus tends to be on growth, profitability and day-to-day pressures. But when an opportunity to sell arises – or circumstances force a change – legal preparation frequently falls behind commercial ambition.
In Northern Ireland, we regularly see transactions delayed, value reduced or deals collapse altogether because key legal issues were not addressed early enough.
Andrew Campbell, Partner at Allsopp Campbell Rainey, explains: “Most exits do not fail because the business lacks value. They fail because legal housekeeping has been left too late. Buyers look for clarity, structure and reduced risk. If those foundations are not in place, confidence – and price – can quickly erode.”
Share Structure and Ownership Clarity
One of the most common problems arises around share ownership. Informal arrangements between founders, unrecorded transfers, or outdated shareholder agreements can create significant difficulties during due diligence.
Issues often include unclear or disputed shareholdings, missing or poorly drafted shareholder agreements, unrecorded director loans or historic decisions not properly minuted.
These may not cause problems while the business is operating normally, but they become highly visible once a buyer scrutinises the company.
Contracts and Commercial Dependencies
Another area frequently overlooked is the strength and transferability of key contracts. Buyers will want to understand whether revenue is secure and whether contracts can continue after a change of ownership.
Owners sometimes discover late in the process that:
• Key customer contracts are informal or unsigned – many sellers look bemused at us and say: ‘but we have had the customer for 20 years…it would breach their trust if we gave them a contract’! This will not work with the buyer’s legal team!
• Change-of-control clauses require consent – several times this has come to the fore in our transactions. If there is a known dynamic at play which prevents the client getting consent, we should not have been involved yet!
• Supplier arrangements are undocumented – we work for many SME’s and are very aware some industries seem to get by with very little paperwork! Or paperwork can quickly be signed. Or the contract may not be worth the paper it’s written on for a potential buyer because it still gives suppliers of the target company the flexibility to do what they want after a transaction. But a stream of undocumented commercial relationships can be the tipping point to put off a buyer as a ‘too hard’ transaction.
• The company does not clearly own intellectual property – in our experience this is the biggest risk of all. We have acted for both sellers and buyers of drinks brands, medical-engineering companies, IFA’s and various consultancies where deals have been substantially renegotiated, significantly delayed at significant cost, or aborted, based key IPR could not be evidenced or registered.
Each of these can weaken negotiating leverage. We advise FSB members in Northern Ireland via the FSB legal helpline. We are privileged to see all shapes and sizes of business, and we see the same exit issues come up again and again. We see sellers plough on as transaction risk is uncovered, and often take on far too much seller risk, or sell after a last-minute price cut, because of their ‘payday’ within touching distance. This is a real dilemma that we encourage business owners to avoid.
Tax and Structure
The business’s legal structure can also affect exit options. Whether the sale is structured as a share sale or an asset sale has tax, liability and commercial implications. For example, sometimes a share sale is aborted because liability issues arise and cannot be insured or indemnified by the seller. The parties have lost the will. They often should have been negotiated as asset sales, meaning ‘safe’ assets can be cherry picked.
Restructuring shortly before an exit can be possible, but it is rarely optimal. Planning allows flexibility and reduces last-minute pressure.
Employment and Management Risk
Buyers are also focused on staff and management stability. Employment contracts, restrictive covenants, and management retention arrangements are often closely examined.
If a key employee doesn’t want to stay, they won’t stay. If they stay reluctantly, they will rarely bring anything good to the buyer. However if key individuals are not properly tied into the business with thought-through rewards like shares or options for shares, or if employment documentation is inconsistent, risk increases. That can affect valuation or lead to additional warranty and indemnity risk for sellers.
Why Timing Matters
Exit preparation ideally begins well before the sale process formally starts. Early review allows owners to:
• Update shareholder arrangements
• Regularise contracts
• Clarify intellectual property ownership
• Resolve historic compliance gaps
• Align structure with likely exit strategy
We link with a number of excellent corporate finance brands who are involved at this level and can spot these issues, as well as having a better idea than lawyers do about possible buyers or investors. Andrew Campbell notes: “An exit should not begin when the offer arrives. The strongest negotiating position comes from preparation. When legal issues are addressed early, owners retain more control over timing and value.”
Preparing for a Successful Exit
Exiting a business is not purely a commercial event – it is a legal transition. Owners who address governance, documentation and structure early are far better placed to achieve a smooth and value-maximising sale.
Allsopp Campbell Rainey advises business owners across Northern Ireland on corporate structuring, shareholder arrangements and business sales. Contact Andrew Campbell or the Allsopp Campbell Rainey team.