What a buyer finds in your ownership structure, and when to fix it

A founder decides to sell. A broker or corporate finance adviser is appointed, a process runs, an offer arrives. Then diligence starts, and a set of issues surfaces that has nothing to do with how good the business is.

The issues are almost always the same ones. They are almost never new. What is new is that somebody with an economic interest in finding them is finally looking.

The recurring findings

Ownership that cannot be evidenced end to end. Share registers with gaps. Transfers documented by an email. An allotment nobody minuted. A trust that holds shares whose trustee appointments were never properly recorded. None of this means the ownership is wrong. It means it cannot be proved cheaply, and unproven ownership becomes a warranty, an indemnity, or an escrow.

A compliance structure whose treatment on a change of control is ambiguous. If an ownership arrangement was built to satisfy a requirement, and the documents are silent on what happens when the company is sold, the buyer will price that silence. So will their lawyer, at considerable hourly cost.

Key-person dependency dressed as goodwill. If the customer relationships, supplier terms, pricing authority and technical knowledge all live with the founder, then the buyer is not purchasing a business, they are purchasing an employment contract they cannot enforce. This is a structuring and delegation problem, and it takes years, not weeks.

Related-party arrangements on informal terms. Property owned by a family trust and leased to the company at a rate nobody benchmarked. A loan account that has drifted. Services provided by another entity the founder owns. Each is normal. Each is a diligence question, and each answered badly is a reason to retrade.

Tax positions that were reasonable and were never documented as such. The position may be entirely defensible. But a buyer inheriting an undocumented position inherits an unquantified risk, and they will either want it quantified or want protection from it.

A structure that cannot receive the proceeds efficiently. The most common and most expensive one. The sale is structured to suit the buyer and the transaction, and the question of what the money lands in, and what happens to it after, gets answered in the last fortnight, by which point most of the useful options have closed.

Why timing dominates everything else

Every item above has a cheap version and an expensive version. The variable is not difficulty. It is when.

Eighteen months out, an ownership record can be reconstructed and properly documented as ordinary housekeeping. A related-party lease can be renegotiated to arm’s length terms and then run at those terms long enough to be credible. A holding structure can be built, funded and given a governance history before it needs to do anything. A tax position can be documented while the people who took it still remember why.

Inside a live process, the same work happens under an exclusivity clock, in front of a counterparty who now knows it needed doing. Nothing about it is impossible. All of it is negotiated from a weaker position, and some of it, anything requiring a track record, simply cannot be done in the time available.

The uncomfortable part: the moment a founder becomes motivated to do this work is usually the moment an offer appears, which is the moment it stops being cheap.

What “prepared” actually means

Not a data room. A data room is the last two weeks.

Prepared means the ownership chain is documented from incorporation to today, and every step has a document behind it. It means the entities that exist have a reason to exist, and the ones that do not have been closed. It means related-party terms are on paper and defensible. It means governance has a record (resolutions, minutes, annual reviews), so the structure demonstrates a history of operating as described. And it means the receiving structure is built, so the question is where the proceeds go rather than where they might be put.

Founders who arrive at a process in that condition report the same two things: diligence is shorter, and the price holds.

A note on the boundary

This is not deal-making. Preparing a structure for a sale and running a sale are different disciplines, and the founders who do best usually have both: a broker or corporate finance adviser whose mandate is the transaction, and separately someone responsible for the ownership architecture the transaction has to pass through.

Confusing the two is a common and avoidable mistake. An adviser incentivised on a completed transaction is the wrong person to ask whether the transaction should wait a year for structural reasons. That question needs someone with no fee riding on the answer.

The question to ask early

If a credible offer arrived on Monday, what would I want to have finished first?

Write the list. It is almost always short, almost always structural, and almost always something that would take twelve to twenty-four months to do properly and calmly.

That list is the work. The best time to start it is well before there is any reason to.