Common legal mistakes in buying and selling companies and how to avoid them

Common legal mistakes in buying and selling companies and how to avoid them

The sale or acquisition of a company is a delicate operation that usually involves the participation of various professionals and is often approached primarily from a financial perspective: price, valuation, numbers.

However, the legal side is of vital importance. A poorly structured transaction, with a contract that fails to reflect the specific characteristics of the deal, or with an incomplete due diligence, can turn what looked like an opportunity into a problem. In this article, we review the most recurring legal mistakes in corporate M&A operations and how to avoid them from the very beginning.

Defects in the sales contract

The sale-and-purchase agreement is not a mere formality: it is the cornerstone on which the entire deal rests. It is striking how often we come across contracts drafted from generic templates, without any adaptation to the nature of the business, the sector or the risks identified. Frequently, it is not defined clearly what is being transferred, for example, whether all shares, specific assets, licences or intellectual property are included, or post-closing price adjustments are omitted, which are essential if hidden liabilities arise or conditions change. Another common mistake is the ambiguous drafting of representations and warranties, which can give rise to divergent interpretations or, worse, disputes.

It is also usual to forget indemnification clauses against contingencies, non-compete or non-solicitation covenants, as well as suspensive or resolutory conditions. Regarding dispute resolution, many contracts fail to provide for arbitration or specific jurisdiction, which further complicates handling any conflict. A generic contract is like a map without coordinates: it can take you anywhere… or nowhere. To avoid this, working with specialized legal counsel from the outset is highly advisable. A well-drafted contract is not bureaucracy; it is legal protection.

In many transactions, the focus is on cash flow, financial statements and company valuation. Much less frequent is a thorough legal review, yet this is the very review that may reveal contracts with termination clauses, significant labor obligations, expired licences or even ongoing litigation. All these factors can directly impact the real value of the business.

Due diligence and expert monitoring

A rigorous legal due diligence must examine the corporate structure (bylaws, prior agreements), key contracts (customers, suppliers, leases), labor liabilities, applicable regulatory compliance and any fiscal commitments with legal implications. The key lies in documenting everything relevant from the outset and ensuring that every finding is reflected in the final agreement, whether through price adjustments, carve-outs, or specific clauses. If doubts arise, it is preferable to document them early than to regret them later.

Another crucial aspect to consider is that acquiring assets is not the same as acquiring a company, i.e., its shares, whether in a limited liability company or a public/private corporation. This distinction radically alters the legal, fiscal and labor-related approach to the transaction. Although it is often assumed that the outcome is the same, acquiring shares does not necessarily guarantee the automatic transfer of certain rights, licences or contracts. Some may require third-party consent or be subject to specific limitations.

It is also common to overlook change-of-control restrictions and fail to consider that certain labor obligations persist regardless of the legal form used. The prudent path is to thoroughly assess the most appropriate structure based on the nature of the business, the sector and the identified risks. Legal strategy should not be a consequence of a commercial agreement; it must be an integral part of the transaction design.

Closing the deal does not mean everything ends. In fact, the real test comes afterward: integration, fulfilment of guarantees, hidden risks, disputes and this is where problems tend to surface. Many agreements lack robust mechanisms for conflict resolution, do not contemplate a transition plan if the seller remains involved, or simply omit procedures for claims or adjustments when actual results diverge from expectations.

To avoid this, it is essential to include clear arbitration or jurisdiction clauses, define deadlines for claims, and incorporate transition or earn-out agreements if the seller remains linked to the business. The clearer and more detailed this section is, the lower the exposure to unexpected risks after closing.

In many transactions, there is no reference to the transfer of intellectual property, trademarks or essential licences for the operation of the business. Equally often, key contracts, whose continuation depends on third-party approval, such as those with strategic suppliers or landlords, are overlooked.

Have legal and financial advisers

A lack of coordination between legal, financial and technical teams can create significant contradictions or gaps. Equally important is compliance with notification obligations to partners, authorities or regulators, for some industries, these notifications are essential for the validity and continuity of the operation.

Acquiring a company may initially seem like a matter of numbers, valuations and projections. But the real success lies in legal certainty: a well-drafted contract, rigorous due diligence, anticipating risks and safeguarding the operation for the future.

If you are considering buying or selling a company, it is better to anticipate than to regret. At LetsLaw, we help you scrutinize every detail with legal precision, with our team of lawyers specialising in sales and purchases of companies in Spain, so that you can make decisions with confidence, not uncertainty.