Transferring Intangible Assets: Playbook for Selling a Knowledge-Based Business - Overview of the Process


[This article is part 2 of a 12-part series covering the key elements involved in the sale of IP-based and professional services businesses.]


As mentioned in a prior article in this series, every business sale is unique. However, most business sale transactions involve similar elements and follow a similar path.  

Of course, some deals may include additional steps, consolidate elements, or even completely skip parts of the process described herein. In addition, some of the elements will occur in a different order. Nevertheless, this article provides a reasonably accurate overview of a deal flow for many transactions involving the sale of IP-based companies, professional services businesses, and other Knowledge-Based Enterprises (“KBE”).

The purpose of this article is to present an overview of a fairly typical KBE sale transaction. Future articles will describe these various elements in greater detail.


Preparing for the Sale

Before a KBE owner can consider selling their company, it is important for them to do some internal “housekeeping.”  Typically, this involves: gathering a list of assets and determining their value, reviewing company documents and records, gathering financial records, preparing an inventory of intellectual property (IP), and reviewing the KBE’s key contracts. In addition, the KBE seller should identify any potential liabilities or other issues and should address them prior to the sale.


In some cases, the buyer may already be determined.  It could be one or more current employees, family members, or perhaps an outside buyer who has approached the seller.  Otherwise, the seller will need to let the marketplace know the business is available for purchase.

There are a number of listing resources online, as well as professional business brokers.  In some cases, the brokers and listing services can provide a number of pre-sale services to assist the seller.  Like most things in life, one typically gets what they pay for. Thus, the more services you require, the more expense you will incur.

Not all business brokers and listing services are equal.  A KBE should fully investigate any potential listing service or broker before they enter into an agreement. 


Once a potential buyer is identified, the parties will enter into discussions to see if a deal is possible. For these discussions to be productive, the KBE and the potential buyer must share some private information such as sales, expenses, lists of vendors and contracts, and other confidential and proprietary information. As such, the KBE must ensure that the parties enter into a confidentiality agreement prior to sharing such data and information.

Term Sheet

If negotiations go well and the KBE and buyer agree on the key elements of a deal, they should reduce these deal terms to a “term sheet” (sometimes called a “letter of intent”). The Term Sheet will outline many of the main deal elements and will serve as a blueprint for their respective legal counsel in drafting the purchase and sale agreements.


Between the time the term sheet has been signed and the closing on the transaction, the buyer will typically want to conduct a thorough investigation of the KBE to ensure it is getting good value for its purchase (and that there are no unexpected liabilities or other surprises).

This process is called the “due diligence” process, and it typically begins with the purchaser sending a request for documents and other information.  This usually includes corporate records, financial reports and information, material on key employees, an IP inventory, and data regarding key relationships and contracts.  The buyer will also ask the KBE to disclose any known liabilities, debts, or other risks.


The buyer may finance its purchase a number of ways.  Although the simplest option would be for the buyer to pay a lump sum in cash to the seller at closing, that may not be possible.  In many cases, the buyer will pay some or all the purchase price in stock, via a promissory note, or an “earn out.”  In other instances, the buyer may have bank or other financing.  The means by which the buyer is paying the KBE seller will significantly influence the deal terms and transaction documents.

Transaction Agreements

Following the execution of term sheet, the KBE seller and buyer will need to execute a purchase agreement.  Depending on the deal structure, this could be an asset purchase agreement, or a stock purchase agreement.  Although the term sheet identified key deal terms that form the backbone of the purchase agreement, there will likely be additional negotiations between the parties as the purchase agreement takes shape to address the details of the transaction.

In addition to the purchase agreement, ancillary agreements related to the transaction may be needed, such as employment agreements, notes, and assignments. 


Before closing, both buyer and seller may need to obtain the consent from various parties to approve the transaction.  This may be lenders, key clients, or any contracts that may be affected by the transaction, such as those requiring consent in the event of an assignment or a “change in control” of the KBE.

In addition, assuming buyer and seller are entities, they will each need to ensure that the transaction is approved by their respective boards and shareholders. 


The closing refers to the moment when the transaction officially occurs. As detailed in the purchase agreement, each party will be responsible for delivering various items to the other party on the closing date. 


After the closing, the buyer will have control over the assets or equity of the seller, and the deal is effectively completed.  However, there are often a number of post-closing matters that need to be addressed, such as recording IP assignments, updating domains and addresses with various third parties, and other matters that could not have been accomplished prior to closing.  In some cases, such as where the KBE seller continues working for the buyer or when part of the purchase price is based on an “earnout,” the post-closing process may carry on for months or even years.


Although each deal will have its own elements and chronology, the above elements provide an overview of many of the typical steps involved in the sale of IP-based and professional services businesses. By understanding these steps, buyers and sellers can be better prepared, which should result in a smoother and productive transaction.

About the Author:

Jim Chester is a 20+ year business and technology attorney, professor, and entrepreneur.  He is a recognized authority in buying and selling technology businesses, global technology transactions, and providing strategic legal counsel for innovators and industry disruptors.  For more on Jim, visit here. He may be reached at

To view the previous articles in this 12-part series:

1 - Transferring Intangible Assets: Playbook for Buying & Selling Knowledge-Based Enterprises

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