Common Legal Mistakes That Sellers Make

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 734 words

The legal mistakes that cost sellers the most are made in the deal documents: a letter of intent that leaves key terms vague, a purchase agreement with broad promises and open-ended indemnities, and structure decisions made without the CPA and attorney in the room. Most are avoidable with the right team working in the right order.

By the time you are negotiating documents, you have usually accepted a price. What the contracts say then decides how much of that price you actually keep, and how much risk follows you after closing.

Leaving the letter of intent too vague

A letter of intent (LOI) sets out the price, structure and main terms before the buyer spends money on due diligence. Some sellers want to skip it, or keep it to a page, to save time. That usually backfires. Every term left open becomes something to negotiate later, when the buyer has exclusivity and you have less leverage. A signed LOI also shows the buyer has committed to specific terms, which filters out the unserious. A good one states, at minimum:

• The price and how it is paid: cash at closing, seller note, earnout or retained equity.
• Whether the buyer is purchasing the company's assets or its ownership interests.
• How working capital will be measured and handled at closing.
• The length of exclusivity and the conditions to closing, including financing.
• The seller's expected role, time commitment and pay after the sale.

Agreeing to broad representations and open-ended indemnities

In the purchase agreement you make representations and warranties: formal statements about the company's finances, contracts, employees, taxes and legal compliance. If one proves untrue, the buyer can seek compensation under the indemnification section. Sellers get hurt when those promises carry no limits.

Your attorney will negotiate protections such as a cap on total liability, a threshold below which small claims are not paid, a time limit on claims, and qualifiers such as to the seller's knowledge. Holdbacks or escrows, where part of the price is set aside for a period, need clear release dates and conditions. For more, see the representations and warranties a seller should expect.

Letting structure and taxes become an afterthought

Whether a buyer purchases your assets or your ownership interests changes your taxes, which liabilities transfer, and which contracts need a third party's consent. How the price is allocated across equipment, goodwill, a non-compete and other items also affects what you keep.

These are decisions for your CPA and transaction attorney, and they belong at the LOI stage, not the week before closing. An owner who lets the buyer's proposed structure stand without review can lose more to taxes than a modest price concession would have cost.

Working capital needs the same early attention. Most buyers expect a normal level of working capital, broadly the cash tied up in receivables and inventory less what the company owes suppliers, to stay in the business at closing. If that target, often called the peg, is left vague in the LOI, the final price can move at closing in ways the seller did not expect.

Other mistakes that surface late

A handful of smaller errors come up again and again in the final weeks of a deal, when there is least time to fix them:

• Signing a non-compete you cannot live with. Check its length, its territory and how it defines a competing business.
• Accepting seller financing without security. A seller note should be backed by collateral, a personal guarantee or both, as your attorney advises.
• Promising a transition you cannot give. Put your post-closing role, pay and hours in writing.
• Skipping the NDA. Every buyer should sign one before learning your company's name or seeing numbers, so a failed deal does not become public knowledge.
• Using a generalist lawyer. A transaction attorney who handles acquisitions regularly knows what is normal and what is overreach.

How we work with your deal team

MDR & Associates does not give legal or tax advice. It works alongside your transaction attorney and CPA from the letter of intent through closing, negotiates multiple LOIs at the same time so terms can be compared side by side, and presents every offer to you in person. Legal documents are step nine of the firm's ten-step process. To limit your exposure once the deal is done, read how to protect yourself from post-closing liabilities. When you are ready to talk, contact the firm.

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Questions owners ask next

Is a letter of intent legally binding?

Mostly not. The price and terms in an LOI are usually non-binding, but certain provisions typically are, such as confidentiality and exclusivity. Your attorney should confirm exactly which parts bind you before you sign, because exclusivity stops you from negotiating with other buyers for the period it covers.

Can I avoid giving representations and warranties?

No. Every buyer will require them, because they are how the buyer relies on what you have told it about the company. What you can negotiate is their scope and your exposure: knowledge qualifiers, caps, thresholds and time limits. Complete, accurate disclosure schedules are the best protection you have.