Selling a Privately Held Business in Montana: Before Signing an LOI

For many owners, a business sale is the largest financial transaction of their lives. The first serious document is often a letter of intent, or LOI. Although an LOI is usually described as preliminary, the commercial expectations it creates can shape the transaction long before the definitive purchase agreement is negotiated.

Start with the owner’s objectives

Price matters, but it is only one part of the outcome. An owner should define the desired timing, acceptable transition period, treatment of employees, future involvement, retained assets, real estate arrangements, tax priorities, and tolerance for post-closing risk. Those objectives should guide the structure before a buyer’s form controls the discussion.

Understand what the price includes

A headline number may assume a particular level of working capital, exclude debt, include cash, allocate value among assets, or depend on an earnout. The parties should understand whether the deal is an asset sale or equity sale and how inventory, receivables, liabilities, transaction expenses, and related real estate will be treated.

Address risk before exclusivity

Exclusivity can prevent the seller from speaking with other buyers while the selected buyer conducts diligence. Before granting it, the owner should evaluate its length, termination rights, diligence demands, financing conditions, and whether the buyer has the resources and authority to close.

Identify the issues diligence will expose

Ownership records, contracts, financial statements, employment matters, permits, environmental conditions, litigation, customer concentration, intellectual property, cybersecurity, and related-party arrangements can affect price and leverage. Preparing early helps the owner explain issues accurately and correct avoidable problems before the buyer discovers them.

Plan the transition and post-closing obligations

The LOI should anticipate whether the owner will provide transition services, remain employed, enter a consulting arrangement, lease property, finance part of the purchase price, or accept restrictions on future activity. Indemnification, escrows, holdbacks, earnouts, and personal guarantees can leave meaningful risk after closing.

Coordinate legal, tax, financial, and personal planning

A sale affects far more than the purchase agreement. Counsel should coordinate with the owner’s accountant, financial adviser, investment adviser, estate-planning team, lender, and other specialists so the transaction structure supports the owner’s objectives and life after closing.

Experienced counsel before the path narrows

Pham Law Firm represents owners in acquisitions, divestitures, redemptions, recapitalizations, partner buyouts, and other changes in control. Vu Pham, JD, MHA, CEPA is an attorney and former CEO and general counsel who advises from a Billings, Montana base on transactions across Montana and nationwide.

Learn more about mergers and acquisitions counsel or request a confidential conversation before signing an LOI or committing to a transaction path.

This article provides general information and does not constitute legal advice or create an attorney-client relationship.