What legal prep does a startup need before an exit?
By SuLe · Updated 9 May 2026
Before an exit, get the fundamentals clean: a cap table reconciled to your Companies House filings, every share and option grant papered, all IP assignments complete, material contracts checked for change-of-control clauses, data protection tidy, disputes resolved or disclosed, and statutory registers up to date. Gaps here become price chips or escrows.
Key facts
- Reconcile the cap table to your Companies House filings and paper every share and option grant.
- Complete IP assignments from founders, contractors and agencies so the company clearly owns its IP.
- Check material contracts for change-of-control and assignability before a buyer does.
- Tidy data protection, resolve or disclose disputes, and bring statutory registers up to date.
- Every gap left in place becomes a price reduction, warranty demand or escrow holdback.
What does a buyer check first?
Ownership. Before anything else, a buyer wants to know exactly who owns the shares and options, and that the record matches reality. That means a cap table reconciled to your Companies House filings, with no unexplained discrepancies.
Every grant must be papered: share issues with valid board and shareholder authority, option grants with signed agreements, any transfers properly documented. A cap table that does not tie to the statutory registers is an immediate red flag.
If a buyer cannot trust who owns what, the whole deal slows while it is untangled — and the uncertainty gives them leverage on price. This is the foundation everything else rests on. [More: What is a cap table and how do I keep it clean?]
Why is IP the make-or-break area?
Because a buyer is paying for what the company owns, and in a startup that is usually the IP. If founders built the product before incorporation, or contractors and agencies wrote code without assigning it, the company may not actually own its core asset.
Complete IP assignments from everyone who contributed — founders, employees, contractors, agencies — so the chain of ownership is unbroken and documented. This is one of the first things institutional diligence tests.
Fixing a broken chain during a deal is slow and awkward: you need cooperation from people who have moved on, and the buyer knows you are under pressure. Do it early. [More: What is an IP assignment agreement and when do I need one?]
What contract and compliance issues catch founders out?
Change-of-control clauses. Many customer and supplier contracts let the other side terminate or renegotiate if your company is sold — so a buyer will check whether a key contract could evaporate on completion.
Assignability matters too: in an asset sale, contracts may need consent to transfer. Map your material contracts for both points before a buyer's lawyers find them.
Beyond contracts, tidy your data protection position, resolve or clearly disclose any disputes, and bring your statutory registers up to date. Undisclosed problems are far more damaging than disclosed ones — surprises destroy trust and price. [More: Share sale vs asset sale — what's the difference for founders?]
| Area | What to fix | Risk if left |
|---|---|---|
| Cap table | Reconcile to Companies House filings | Deal stalls; price uncertainty |
| Share & option grants | Paper every grant with proper authority | Warranty demands, escrow |
| IP assignments | Complete from all contributors | Ownership gap; price chip |
| Material contracts | Check change-of-control and assignability | Lost contract on completion |
| Data protection | Tidy policies and records | Compliance risk flagged |
| Disputes | Resolve or clearly disclose | Loss of trust; indemnities |
| Statutory registers | Bring up to date | Fails basic diligence |
How do gaps hurt the price?
Directly. Anything a buyer finds that is not clean becomes a negotiating point: a price reduction ("price chip"), a specific warranty or indemnity you must give, or an escrow — money held back from your proceeds until the issue is resolved.
None of these are theoretical. A single unassigned contractor or one change-of-control contract can justify a holdback that ties up part of your payout for months.
The pattern is consistent: problems fixed before you go to market cost you time; problems found in diligence cost you money and leverage. Preparation is the cheapest protection you have.
Worked example
Dev is preparing his proptech company for a possible sale in twelve months. Rather than wait for a buyer, he runs a pre-exit clean-up.
He reconciles the cap table to Companies House and finds two option grants that were never formally documented, which he papers properly. IP diligence of his own turns up a freelance developer who never signed an assignment, so he secures one while the relationship is still warm. He reviews his top ten contracts and flags two with change-of-control clauses, preparing consent requests in advance.
When a buyer appears, diligence runs smoothly because the work is already done. The issues that would have become price chips or escrows simply are not there — Dev fixed them on his own timetable, not the buyer's.
Where founders go wrong
Leaving the cap table until a buyer appears
— reconciling under deal pressure is slow and hands the buyer leverage; keep it clean continuously.Assuming the company owns its IP
— pre-incorporation, contractor and agency work often is not assigned; check and fix the chain.Missing change-of-control clauses
— a buyer will find them; losing a key contract on completion hits your price directly.Hiding problems instead of disclosing
— undisclosed issues destroy trust and invite indemnities; disclosed ones are just managed.
Related questions
What is the single most important exit prep task?
A clean cap table reconciled to your Companies House filings, with every share and option grant properly papered. If a buyer cannot trust who owns what, everything else stalls — and unexplained gaps become price reductions or escrow holdbacks. [More: What is a cap table and how do I keep it clean?]
Why do IP assignments matter so much at exit?
A buyer needs certainty the company owns what it is selling. If founders, contractors or an agency never assigned their work to the company, the IP chain is broken. Fixing it retrospectively mid-deal is slow and hands the buyer leverage on price. [More: What is an IP assignment agreement and when do I need one?]
What is a change-of-control clause?
A term in a contract letting the other side terminate or renegotiate if your company is sold. If your key customer or supplier contracts contain one, a buyer will want to know — losing a major contract on completion directly affects value.
What happens if I leave gaps in my prep?
Gaps found in diligence become price chips, warranty demands or escrow holdbacks — money withheld from your proceeds until issues are resolved. Fixing problems before you go to market keeps them off the negotiating table and protects your price.
When should exit prep start?
Long before you have a buyer — ideally you keep the company exit-ready as you grow. Reconciled registers, papered grants and complete IP assignments are far cheaper to maintain than to reconstruct under deal pressure with a buyer watching.
Exit prep is unglamorous, but every gap you leave — an unassigned contractor, a stray option grant, a change-of-control clause — is money a buyer will claw back through the price or an escrow. A SuLe solicitor can run a pre-exit health check so your company is clean before anyone looks. Book a free consultation with a startup solicitor well before you go to market.
Keep reading: What extra due diligence do institutional VCs run at Series A? · Share sale vs asset sale — what's the difference for founders? · What is a share purchase agreement (SPA)? · What is a cap table and how do I keep it clean? · What is an IP assignment agreement and when do I need one? · What happens to SEIS/EIS investors in an exit?
Primary sources: Companies Act 2006
