The Top Legal Mistakes That Kill Business Deals

Selling your business is one of the biggest moves you’ll ever make. The problem? Deals don’t fall apart because of big, obvious mistakes. They die slow deaths thanks to legal oversights that seem small… until the buyer’s lawyer circles them in red ink.

Think of it like selling your car: you wouldn’t hand the buyer a glove box full of unpaid parking tickets, an unsigned title, and then tell them, “Don’t worry, my cousin can write up the bill of sale.” Yet that’s exactly what many business owners do when it comes to legal documentation.

If you’re planning to sell, here are the top legal mistakes that can sink your deal faster than you can say “earnest money.”

Poorly Drafted or Vague Agreements

This one is the silent killer. Using a generic online template or letting your “friend who does real estate closings” write up your sale agreement is like building a parachute out of duct tape.

• Vague language creates loopholes big enough to drive a truck through.

• Missing terms leave room for endless disputes.

• And “standard agreements” usually aren’t designed for business sales at all.

Bottom line: if your agreement isn’t crystal clear, the buyer’s attorney will make it crystal clear — by advising their client to run.

Unresolved Liabilities

Got an unpaid tax bill? A lingering lawsuit? A vendor you haven’t paid since the Obama administration? If so, buyers will find it — and they won’t be impressed.

Unresolved liabilities don’t just lower your price; they can scare a buyer off completely. Sellers should do their own “pre-due diligence” before ever going to market. Think of it as cleaning your house before inviting guests over. (Except in this case, the “guests” bring lawyers, accountants, and magnifying glasses.)

Lease Issues

Your landlord can make or break your sale. That’s not an exaggeration — I’ve seen more deals collapse over lease problems than almost anything else.

Common issues:

• Non-transferable leases.

• Short lease terms with no renewal option.

• Hidden escalations or unfavorable terms buyers don’t want to inherit.

Solution? Don’t wait until you’re under contract to look at your lease. Get ahead of it and negotiate extensions or assignability clauses before you list. Buyers love certainty — and so do their lenders.

Poor Legal Documentation for Partnership/Ownership

Here’s a fun one: you get an amazing offer, you’re ready to sign… and suddenly, your 20% partner (the one you haven’t spoken to in two years) shows up saying, “Not so fast, buddy.”

Missing or outdated ownership documents (like operating agreements, shareholder agreements, or partnership agreements) are deal killers. Buyers don’t want to wade into internal disputes — they’ll just walk away.

Tip: make sure your ownership documents are current, signed, and enforceable. Otherwise, your “partner” could end up being your biggest obstacle to retirement.

Inadequate Warranties & Representations

Here’s where some sellers get a little too enthusiastic. In the heat of the deal, they make promises that sound like late-night infomercials:

• “This business practically runs itself!”

• “Every customer pays on time!”

• “We’ve never had a single employee issue!”

The problem? If any of those statements turn out to be false, you could face lawsuits or post-sale clawbacks. The smart move is to provide accurate, balanced warranties that protect you and give the buyer confidence.

Skipping Professional Legal Counsel

Here’s the truth: your broker is not your lawyer. Neither is your CPA. And neither are you (unless you actually are, in which case… hire another lawyer anyway).

Trying to save a few bucks by skipping legal counsel is like doing your own dentistry. Sure, you can try — but the outcome probably won’t be pretty. The cost of an experienced attorney is a fraction of what you stand to lose if your deal falls apart or winds up in court.

Picking the Wrong Lawyer

Almost as bad as skipping counsel is picking the wrong one. Many sellers hire their family lawyer, their buddy from church, or a general business attorney.

The problem? Business sales are a different animal. Without M&A experience, lawyers can:

• Overcomplicate things that don’t matter.

• Miss the things that do matter.

• Or drag out the process until the buyer loses interest.

You want a lawyer who specializes in transactions — someone who knows the playbook and keeps the deal moving forward. Otherwise, you’ll be paying by the hour for your lawyer’s education.

Conclusion

Selling your business should end with champagne, not subpoenas. The good news? Most legal mistakes are entirely preventable if you prepare early and surround yourself with the right team.

To recap:

• Use solid agreements.

• Clean up your liabilities.

• Secure your lease.

• Keep partnership documents current.

• Make honest warranties.

• Hire the right legal counsel.

Do those things, and you’ll give buyers the confidence to move forward — and yourself the peace of mind to move on.

At EDGE Business Advisors, we help sellers avoid these landmines and set the stage for a smooth, successful exit. If you’re thinking about selling, start with a conversation. We’ll make sure your business is ready — legally and financially — to close.