What are the primary documents involved in an acquisition?

Takeaway: The sale of a startup involves several crucial documents including the Pitch Deck, Letter of Intent, Confidentiality or Non-Disclosure Agreement, Due Diligence Documents, Purchase Agreement, Ancillary Agreements, and Closing Documents, each playing a vital role in the different stages of the transaction.

When selling a startup, there are several key documents involved in the transaction. Understanding the purpose and contents of these documents is crucial to successfully navigate the sale process. Here are the primary documents you will encounter during a startup sale.

Pitch Deck

This document is used during the initial stages to attract potential acquirers. It outlines the startup's business model, products or services, market opportunity, financial history, and projections. The pitch deck should be concise, accurate, and engaging to capture the interest of potential buyers.

Letter of Intent (LOI)

After finding an interested acquirer, the next step is typically a letter of intent (LOI). This document outlines the key terms of the potential transaction, such as the purchase price, structure of the deal (asset sale, stock sale, or merger), and key conditions for the deal to proceed. While often non-binding (except for certain clauses like confidentiality and exclusivity), the LOI sets the expectations for the rest of the transaction.

Confidentiality or Non-Disclosure Agreement (NDA)

To protect sensitive information shared during the sale process, both parties typically sign a confidentiality or non-disclosure agreement. This document ensures that the potential acquirer will keep all proprietary information confidential and use it only for evaluating the potential acquisition.

Due Diligence Documents

Once an LOI is signed, the potential acquirer will conduct due diligence. This process involves a thorough examination of all aspects of the startup, from its financial records to its intellectual property. Sellers should prepare a comprehensive due diligence checklist and gather relevant documents to facilitate this process.

Purchase Agreement

The purchase agreement is the primary legal document that finalizes the terms and conditions of the sale. This document contains details about the structure of the deal, the purchase price, representations and warranties of the seller and buyer, closing conditions, and post-closing obligations.

Ancillary Agreements

In addition to the purchase agreement, several ancillary documents may be needed. These might include employment or consulting agreements for the startup's founders, escrow agreements, intellectual property assignments, and others. These documents are used to formalize various aspects of the transaction not covered in the primary purchase agreement.

Closing Documents

At the closing, final documents are executed. These include any final share or asset transfer documents, resignation letters from departing directors, and others as required by the purchase agreement.

Conclusion

Every transaction is unique, and the specific documents required may vary. It's essential to engage experienced legal counsel to help guide you through this process.