Founders think about exit as a negotiation. In our experience the number on the term sheet moves less than the number that survives diligence, escrow, warranties and tax. And almost everything that determines that gap is fixed — or not fixed — long before the process starts.
The useful window is eighteen months. Some of it is available at twelve. Very little is available at three.
Why eighteen months
Three constraints set the clock:
- Anti-avoidance and holding periods. Many reliefs and exemptions require a minimum holding period, and many jurisdictions apply a motive or purpose test that a change made during a live sale process will fail.
- Residence changes take time to be real. A change of personal or corporate tax residence needs a full tax year, physical presence, and evidence. Announced in month two of a sale process, it is not credible.
- Diligence looks back. Buyers examine the last three years of intercompany agreements, board minutes and tax filings. Documents created retrospectively are visible as such.
The pre-exit checklist
1. Cap table and share classes
- Reconcile the share register with every issuance, transfer and option grant since incorporation. Gaps here delay completion more often than anything else.
- Confirm option scheme validity, exercise mechanics and tax treatment in each employee''s jurisdiction. A scheme designed for one country and rolled out to five is a common and expensive discovery.
- Deal with dormant or disputed shareholdings. A 0.5% holder who cannot be located can hold up a deal.
- Ensure drag-along and tag-along provisions actually work at the intended threshold.
2. IP ownership
- Every line of code, brand, domain and design should be owned by the entity being sold, with a chain of assignment from every founder, employee and contractor. Contractor IP is the standard gap — a signed assignment, not just an invoice.
- Register trade marks in the core markets. Buyers discount unregistered brands.
- If IP sits in a separate entity, the licence to the operating company must be documented, arm''s-length and consistent with how the group actually behaves.
3. Intercompany arrangements
- Written agreements for every intercompany flow: services, licences, loans, cost sharing. Backed by transfer-pricing analysis proportionate to the amounts.
- Intercompany balances reconciled and either settled or documented as loans with terms.
- Board minutes evidencing that each entity''s directors approved its own arrangements.
4. Structure
- Is the entity being sold the right one? A buyer usually wants a clean operating company or a holding company with only relevant subsidiaries beneath it. Non-core assets — property, investments, a founder''s side venture — should be extracted well in advance, with the tax consequences taken deliberately.
- Substance where it is claimed. If a holding company claims treaty benefits on a sale, its board activity must support that claim for the periods that matter.
- Participation exemption or substantial shareholding relief conditions checked against the actual facts, including holding period and activity tests.
5. Personal position
- Residence and domicile as they will be at completion, evidenced.
- Where a relocation is planned, complete it a full tax year before completion, with real presence.
- Consider whether shares should be held personally, through a holding company, or in trust — and note that transfers into a structure during a sale process are usually taxed at market value and may be recharacterised.
- Model the after-tax proceeds under each scenario before agreeing deal structure. Cash, shares, earn-out and loan notes have very different tax profiles.
6. Housekeeping that buyers price
- Filed and current accounts, tax returns and statutory registers in every jurisdiction.
- Employment contracts and contractor classification reviewed — misclassified contractors are a warranty issue.
- Data protection compliance documented where customer data is material.
- Customer contracts reviewed for change-of-control provisions.
- Litigation, disputes and regulatory correspondence collated with a written position on each.
What stops being available
Once a buyer is engaged:
- Moving IP, extracting non-core assets, or inserting a holding company will generally be taxed on market value and viewed as sale-motivated.
- Changing residence has no credibility for the transaction.
- Reconstructing minutes or agreements is worse than having none.
- Renegotiating employee option terms becomes a disclosure item.
Earn-outs and deferred consideration
Where part of the price is deferred, the tax treatment depends on whether the right to future consideration is ascertainable at completion, and the jurisdiction''s rules on valuing it. This affects both timing and rate. It must be modelled before heads of terms are signed — after that, the structure is agreed and the tax follows it.
Sequencing
- Month 0–3: structure review, gap analysis, cap table clean-up, IP assignments.
- Month 3–9: implement structural changes; complete any residence steps; put intercompany agreements and transfer-pricing files in place.
- Month 9–15: operate the new arrangements normally, generating a clean history.
- Month 15–18: vendor diligence, data room, adviser appointment.
FAQs
Is it too late if a buyer has already approached?
Not for everything — cap table, IP assignments and documentation can still be fixed. Structural and residence changes are largely gone.
Should I put shares into a trust before exit?
Sometimes, and it must be done early. Transfers close to a sale are typically valued at deal price and may not achieve the intended outcome.
Do I need a tax opinion?
For a material transaction, yes. Buyers ask, and it supports warranty and indemnity insurance pricing.
How much does pre-exit work cost?
Far less than the diligence discount it prevents. Most of it is documentation discipline rather than exotic planning.
