1.Letter of Intent

This is a letter prepared by the successor to formally expresses their interest in making an offer for the business. It often requires specific information, including how the transition will be done to fit the structure of the business. This letter of intent becomes particularly important if the next generation owner intends to purchase the business from an exiting business owner. This is to allow for fair negotiation and can ensure there is a focus on the expectations of the business owner to reach an agreement.

2.Purchase and Sale Agreement

This document is also referred to as the Definitive Purchase Agreement. It includes the final agreement between the parties and acts as a legally binding document for the ownership exchange. Within it, the shares and how they will be divided is outlined. Also, there will be details on how stocks and assets are to be purchased. This agreement should be drafted by an attorney who is well-versed in all the requirements and payments necessary. Furthermore, the attorney can support the exit strategy advisory team with their expertise. With the Definitive purchase agreement, the tax implications for each transaction are captured.

#### 3.Earn-Out Agreement

One aspect of an exit strategy is offering the successor a guarantee that the business will continue to grow and thrive even after the business owner has made their exit. For most business owners, getting a one-time cash payment to close the deal is the best strategy. This may not be ideal for the buyer. With the earn-out agreement, the buyer offers to make payments to the exiting owner after the exit for some time. This is highly risky for the business owner, as once they exit the business, they have little control over the operations and real success of the entity. If this agreement is used, it needs to have precise and careful wording that offers the exiting business owner some protection.

4.Non-Compete Agreement

When a business owner chooses an exit strategy, there is one highly valuable asset that they take away with them. That is their expertise and knowledge on how to run the business. This can be of concern to the business successor who will want to take all the necessary steps to protect their new investment in the business. This is where the non-compete agreement is essential. This is a formal agreement that outlines that the exiting business owner will not create a competing business or be employed within the same industry in a competing organization for some time. Typically, the non-compete agreement will cover three years.

To ensure that the full legal process is followed, some documents need to be updated continuously for ease of transition. These include all intellectual property licenses, patents, trademarks, and copyrights. The same applies to any software that may hold sensitive or confidential information. These types of documents have an impact on royalties and the way they are collected.

Also, contracts with vendors and clients need filing and updating as they tie into the value of the business. They also provide information on the length of time these stakeholder relationships are valid.
