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Guides
Insights
Memorandums of Understanding (MOUs): Clarity Without Commitment
In early startup partnerships or exploratory projects, you might not be ready for a full contract - but you still need alignment. A Memorandum of Understanding (MOU) provides a way to set expectations without creating binding obligations.
Letters of Intent (LOIs): What Founders Need to Know Before the Deal
Startups often move fast - but when you're courting investors, buyers, or major customers, you need to slow down just long enough to sign a Letter of Intent (LOI). It’s not a binding contract (usually), but it lays the groundwork for one - and sets the tone for the entire deal.
SaaS Agreements Demystified: Legal Must-Knows for Software Startups
If your startup delivers software in the cloud, your SaaS Agreement isn’t just legal fine print - it’s the foundation of your customer relationships. The terms you set now will define your revenue model, limit your risks, and help you scale into larger deals.
FAQs
Open allWhen should an owner start planning their exit strategy?
Ideally, exit planning should begin several years in advance. Early preparation increases valuation and ensures smoother negotiations.
What is the best exit strategy for a small business owner?
The right strategy depends on goals. Many small business owners pursue third-party sales or ESOPs, while larger companies often benefit from mergers or acquisitions.
What role does due diligence play in mergers?
Due diligence is the process of investigating financial, legal, and operational risks before closing. It helps identify liabilities, verify valuations, and strengthen negotiation positions.
Do all mergers require regulatory approval?
Not all mergers require government approval, but larger transactions or deals in regulated industries may need clearance from agencies like the FTC, DOJ, or industry-specific regulators.
What is the difference between a merger and an acquisition?
A merger combines two or more companies into one surviving entity, while an acquisition occurs when one company purchases another’s stock or assets.
Are stock purchases subject to taxation?
Yes. For sellers, stock purchases are often taxed at capital gains rates. Buyers typically cannot “step up” the tax basis of the company’s assets, which may affect future deductions.
Can a buyer avoid inheriting liabilities in a stock purchase?
Not entirely. Buyers inherit all liabilities of the company. However, risks can be managed through due diligence, indemnification provisions, and escrow arrangements.
What are the main advantages of a stock purchase compared to an asset purchase?
Stock purchases are simpler to execute because the company remains intact, preserving contracts, permits, and relationships. Asset purchases, while offering liability protection, often require more paperwork and consents.
Are employees automatically transferred in an asset purchase?
No. Buyers must choose which employees to hire and issue new contracts, though they may assume existing benefits or tenure for retention purposes.
Can tax benefits make an asset purchase more attractive than a stock purchase?
Yes. Buyers often gain a stepped-up basis in acquired assets, creating valuable tax deductions.
What is the biggest advantage of an asset purchase?
The ability to avoid inheriting unknown liabilities while selectively acquiring only valuable assets.
Can licensing agreements be terminated early?
Yes. Most agreements include termination clauses, either for breach of terms or for convenience, but the scope of surviving rights (like confidentiality) must be addressed.