Legal Mistakes That Can Kill a Business Sale in Indiana
By Troy Frank, Owner — Indiana Equity Brokers
Estimated read time: 8 min
The short answer: The most costly legal mistakes sellers make when selling a business in Indiana fall into five categories: choosing the wrong sale structure (asset vs. stock), signing a poorly written letter of intent, agreeing to an overly broad non-compete, making representations they can’t support in due diligence, and hiring a general attorney instead of one with M&A transaction experience. Any one of these can blow up a deal after months of work or expose the seller to liability years after closing.
This article is educational and does not constitute legal advice. Consult a qualified transaction attorney for guidance specific to your situation
Most sellers spend years building a business and a few months selling it. The legal side of that sale gets compressed into a period when everyone is already exhausted and eager to get to the finish line. That’s exactly when mistakes happen.
I’ve watched deals collapse in due diligence, fall apart at the closing table, and even close successfully but leave sellers exposed to post-closing liability they didn’t see coming. Almost every time, the root cause was a legal issue that could have been caught earlier.
This article covers the legal mistakes that actually matter when selling a business in Indiana. Not the obvious stuff, but the things that blindside even experienced sellers.
Mistake #1: Not Understanding Asset Sale vs. Stock Sale
This is the most consequential legal decision in the entire transaction, and most sellers don’t know it exists until a buyer’s attorney brings it up.
Here’s the difference:
In an asset sale, the buyer purchases specific assets of the business (equipment, inventory, customer lists, goodwill, the name) without taking on the legal entity itself. The seller’s LLC or corporation remains intact; the buyer creates a new entity to hold what they acquired. The buyer gets liability protection from the seller’s past. The seller usually pays higher taxes because most asset gains are taxed as ordinary income.
In a stock sale, the buyer purchases the owner’s shares or membership interests. They step into the existing entity, including its history, contracts, and liabilities. Sellers generally prefer this structure because capital gains tax rates apply, which are significantly lower than ordinary income rates.
The tension: buyers almost always want an asset sale. Sellers almost always prefer a stock sale. The deal structure that results and the tax treatment that follows can swing the seller’s net proceeds by hundreds of thousands of dollars on a mid-sized transaction.
Most Main Street transactions in Indiana close as asset sales. That’s not necessarily bad for sellers, but you need to understand what you’re agreeing to and ensure the purchase price accounts for the tax differential. A seller who doesn’t understand this distinction signs an asset sale agreement thinking it’s a wash and discovers later they kept far less than expected.
Your transaction attorney and your CPA need to work this out together before you sign anything. Not after.
Mistake #2: A Letter of Intent That’s Too Loose or Too Tight
The Letter of Intent (LOI) is the document that follows an accepted offer. It outlines the key deal terms (price, structure, exclusivity period, timeline) and sets the framework for everything that comes after.
Sellers often treat the LOI as a handshake document. It’s not. While LOIs are typically non-binding on the final transaction, certain provisions within them are binding immediately: exclusivity clauses, confidentiality obligations, and sometimes breakup fees.
Where sellers get burned:
A vague LOI leaves too much room for renegotiation during due diligence. Buyers who discover any ambiguity in the original terms — and they will look — use it to reopen price discussions or change deal structure mid-stream. By that point, you’ve been off the market for 60–90 days and your leverage has evaporated.
An overly aggressive LOI, particularly one with a high termination fee, can scare off legitimate buyers or create legal complications if the seller later needs to walk away.
The right LOI is specific about what’s included and excluded from the sale, clear on the exclusivity period (typically 60–90 days), and structured so it protects the seller’s position without torpedoing the deal.
We cover the specific ways deals fall apart after both sides sign the LOI in our post on why business sales collapse after an agreement is reached. The LOI issues described there are exactly what a well-drafted letter of intent prevents.
Mistake #3: Signing a Non-Compete That’s Too Broad
Almost every business sale includes a non-compete agreement. The buyer is paying for goodwill: your relationships, your reputation, your customer base. They need assurance you won’t take that goodwill across the street and rebuild the same business.
That’s fair. The problem is scope.
Sellers sometimes agree to non-competes that are far more restrictive than the deal requires. Common overreaches:
Geography too wide. A non-compete for a local plumbing company in Indianapolis shouldn’t cover the entire state of Indiana, let alone the Midwest. Courts in Indiana will sometimes enforce geographic restrictions that are “reasonable,” but an overly broad agreement creates unnecessary constraints on what you can do next.
Duration too long. Two to five years is standard for most Main Street transactions. Longer than that (especially combined with a wide geography) starts to look punitive and can be challenged.
Industry definition too vague. If the non-compete says you can’t work in “any business similar to the one sold,” that language can be read to prevent you from doing nearly anything in your industry. Get specific: what exactly are you agreeing not to do, and for how long?
Sellers in a hurry to close often wave through non-compete terms without reviewing them carefully. Review them carefully. Once you sign, you’re bound by what the document says, not what you thought it meant.
Mistake #4: Making Representations You Can’t Support
The purchase agreement you sign at closing contains representations and warranties — statements you are making to the buyer about the business. Things like: the financial statements are accurate, there is no pending litigation, all taxes have been paid, all material contracts are in good standing.
If any of those representations turn out to be false, the buyer can come back after closing and sue for damages. In many deals, a portion of the purchase price is held in escrow specifically to cover post-closing claims against the seller’s representations.
The mistakes sellers make here:
Signing representations about things they haven’t verified. Sellers assume their accountant handled the taxes, assume the old lease is assignable, assume there’s no pending litigation. Those assumptions become legal statements when you sign the agreement.
Agreeing to a broad indemnification clause that gives the buyer an easy path to recoup money post-closing. Indemnification caps and survival periods — how long after closing the buyer can bring claims — need to be negotiated, not accepted as boilerplate.
The fix is simple in concept and requires discipline in practice: know what you’re signing before you sign it. That means reviewing every representation in the purchase agreement line by line with your attorney, confirming each one is accurate, and pushing back on any that aren’t.
Mistake #5: Hiring the Wrong Attorney
This is where sellers save $5,000 and lose $50,000.
Business sale transactions are not routine legal work. The attorney who handled your LLC formation, your real estate closing, or your last employee dispute may be excellent at what they do. That doesn’t make them qualified to represent you in an M&A transaction.
Transaction attorneys who regularly work on business sales know the market standards for indemnification caps, non-compete scope, escrow terms, and rep and warranty insurance. A general attorney reviewing their first purchase agreement doesn’t know what’s customary and what’s aggressive — which means they either accept everything or fight everything, and neither outcome serves you.
Ask your attorney specifically: how many business sales have you represented sellers on in the last two years? What’s the typical deal size? Do you work with business brokers regularly?
Indiana has a solid network of transaction attorneys. Indiana Equity Brokers can point you toward attorneys who work at the Main Street to lower-middle-market level — which means they’re priced appropriately and experienced with the types of deals our sellers close.
Confidentiality is also a legal issue that deserves professional attention. Every buyer who receives information about your business should sign a proper NDA before seeing anything meaningful. If you want to understand how seriously we take confidentiality throughout the sale process, our confidentiality approach page walks through it.
Frequently Asked Questions
What legal documents are needed to sell a business in Indiana? The core legal documents in a business sale are the Non-Disclosure Agreement (NDA), the Letter of Intent (LOI), the Purchase Agreement (which defines what’s being sold, the price, and the terms), a Bill of Sale for transferred assets, and any assignment agreements for leases, contracts, or intellectual property. For asset sales, you’ll also need transfer documents for each major asset category. Your transaction attorney will draft or review all of these.
What is the difference between an asset sale and a stock sale? In an asset sale, the buyer purchases specific assets of the business — equipment, customer lists, goodwill, inventory — and the existing legal entity stays with the seller. In a stock sale, the buyer purchases the owner’s shares and takes over the entire legal entity, including its history and liabilities. Buyers generally prefer asset sales for liability protection. Sellers generally prefer stock sales for more favorable capital gains tax treatment. Most small business sales are structured as asset sales.
How long should a non-compete agreement last when selling a business? A non-compete of 2 to 5 years is standard for most small business sales. The scope — what industry, what geography — should match the actual business being sold. An overly broad non-compete can restrict your career options unnecessarily, and Indiana courts may decline to enforce provisions that go beyond what’s reasonable to protect the buyer’s legitimate interests. Always negotiate non-compete terms before signing.
What are representations and warranties in a business sale? Representations and warranties are statements in the purchase agreement that the seller certifies as true — things like the accuracy of financial statements, the absence of undisclosed litigation, and the proper payment of taxes. If a representation turns out to be false, the buyer can pursue a post-closing claim against the seller. Sellers should verify every representation before signing and negotiate caps on indemnification exposure and limits on how long the buyer has to bring claims.
Do I need a special attorney to sell my business, or can I use my regular lawyer? You need an attorney with specific M&A transaction experience. General business attorneys — even excellent ones — often lack familiarity with market-standard terms for purchase agreement provisions, indemnification structures, and rep and warranty negotiations. The cost of hiring a transaction-experienced attorney is far less than the cost of signing a poorly structured purchase agreement.
Get the Legal Side Right Before You Go to Market
Legal issues in a business sale rarely surprise you at the start of the process. They surface during due diligence, during purchase agreement negotiations, and sometimes years after closing when a post-closing claim lands on your doorstep.
The best time to address them is before you list. That means understanding your sale structure options, having the right team in place, and going into negotiations knowing what you’ll and won’t agree to.
Indiana Equity Brokers has closed more than 878 transactions in Indiana. We coordinate with transaction attorneys and CPAs throughout the process and can help you identify issues before they become deal-killers. If you’re thinking about selling and want to understand what the process actually looks like — legally and otherwise — start with a confidential conversation about your situation.
