M&A / Company Sales: Advance Planning by the Selle

In M&A (mergers and acquisitions) transactions, the decisions made by the seller prior to the formal launch of the process usually have a significant impact on the final outcome of the deal. Early preparation allows the seller to anticipate and resolve corporate, contractual, and regulatory matters that, if only identified during the buyer's due diligence, typically result in price adjustments, expanded representations and warranties, or extensions to closing timelines.

Recent practice has consolidated this trend, in line with the safeguards expected by professional buyers and recent regulatory updates. Budget Law No. 20,446, which we have previously commented on, introduced rules regarding indirect transfers of equity interests and intra-group corporate reorganizations. In certain scenarios, these rules require a minimum time horizon for the solutions to be effective.

Below, we analyze the main aspects to consider.

Reverse Due Diligence (Vendor Due Diligence)

Vendor due diligence consists of a comprehensive examination of the target company conducted by the seller themselves prior to initiating the sale process. It aims to identify contingencies, documentation weaknesses, and areas likely to raise concerns from the buyer, in order to either resolve them or, alternatively, disclose them in an orderly manner during the process.

The aspects typically addressed include labor contingencies, commercial contracts containing change-of-control clauses, intellectual property registration and ownership, current sector-specific licenses and permits, the procedural status of litigation and administrative claims, tax compliance, and potential contingencies under discussion with the Tax Authority. Early detection of these matters allows the seller, depending on the case, to rectify them before the process begins, create accounting provisions, or properly structure their disclosure and contractual treatment through specific representations, capped indemnities, or the use of purchase price retention mechanisms.

Regarding licenses, permits, trademarks, and other registrations obtained from state agencies, it is especially important to verify that these are held by the company being sold, rather than by the partners or a different group company. Otherwise, the buyer acquires the target company but not the intangible or operational assets that drive the business. This constitutes a critical finding in the due diligence and may require a pre-closing restructuring of ownership.

Prior Corporate Clean-up: Simplifying the Group Structure

Closely held and family-owned businesses often present corporate structures that have been shaped over time in response to tax, estate planning, or circumstantial decisions. It is common to find intermediary holdings, inactive companies, cross-shareholdings, and non-operational assets included within the same perimeter as the business.

These types of structures add complexity at the time of the sale and usually affect the buyer's risk assessment. Simplifying the corporate structure prior to the M&A process—through carve-outs of non-operational assets, simplifying intra-group mergers, regularizing inactive companies, and separating business assets from the shareholders' personal assets—facilitates due diligence, helps clarify the transactional perimeter, and allows the seller to present a company with a clear and legible structure to the buyer.

When these clean-up operations involve transfers of ownership interests, attention must be paid to the exception regime for intra-group corporate reorganizations provided for in Law No. 20,446. This regime requires that ultimate beneficial owners maintain at least 95% of their proportionate equity share for a period of no less than two years from the transfer. This timing condition makes it advisable to plan clean-up operations well in advance of initiating a sale process to a third party.

Bylaw Clauses and Shareholders' Agreements

When multiple shareholders are involved, it is advisable to review the corporate bylaws and any shareholders' agreements well in advance. Particular attention should be paid to clauses regarding rights of first refusal, drag-along and tag-along rights, the majorities required to approve the transfer, restrictions on share transferability, and, if applicable, deadlock resolution mechanisms among shareholders.

Overlooking these provisions can create hurdles to finalizing the transaction under the negotiated terms or may require obtaining waivers or complying with specific procedures whose timing may be incompatible with the closing schedule.

Corporate and Contractual Documentation

Having up-to-date corporate books, formal shareholder registries, properly executed minutes of shareholder and board meetings, and valid, signed contracts with key customers, suppliers, and employees are basic elements that the buyer will examine during due diligence.

Accounting books must be up to date and financial statements must be approved by the shareholders' meeting, with their respective minutes of approval duly documented. An unapproved financial statement, or one with unexplained auditor qualifications, raises doubts about the company's governance and can lead to price adjustments or demands for additional representations and warranties from the buyer.

Regularizing overdue or defective corporate or contractual documentation takes time and, in some cases, requires the intervention of third parties (contractual counterparties, public agencies); therefore, it is recommended to address this early on.

Contracts with major customers and suppliers that contain change-of-control clauses deserve special attention, as they may require prior consent. Negotiating these consents with third parties once a process has already begun is typically more complex. Similarly, contracts with banks and financial institutions—such as loans, credit lines, and security agreements—are of particular relevance here, as change-of-control clauses are standard practice in them. Activating these clauses could trigger the acceleration of debt or the termination of collateral. Unlike commercial contracts, bank approval is often a condition for the feasibility of the transfer, directly impacting the timeline and structure of the transaction.

Regulatory Planning

Certain transactions may require prior clearance from the Commission for the Promotion and Defense of Competition (Comisión de Promoción y Defensa de la Competencia), under the scenarios provided by Law No. 18,159 and its amendments. Furthermore, in regulated sectors, the transfer of shares may trigger notification or authorization requirements before the competent sectoral regulator. Identifying these requirements early on allows for a realistic projection of the transaction timeline and, where appropriate, the design of a transaction structure that optimizes approval times.

Title Remediation of Assets

It is also advisable to verify the registry status of real estate, vehicles, and any other registrable assets belonging to the company. In long-established companies, it is frequent to find unexecuted purchase promise agreements, outstanding liens or injunctions that have not been formally lifted, or outdated filings in the Property Registry. These issues systematically surface during due diligence and, if not resolved in advance, can delay the closing of the transaction or condition the representations and warranties required from the seller.

Conclusion

Advance planning by the seller is not an optional stage: it is an effort whose return on investment is measured directly in the purchase price, the indemnities to be granted, and the certainty of closing the deal. The foresight with which these matters are handled directly influences the menu of legal options available to the seller at the start of the process, particularly following the enactment of Law No. 20,446 and the minimum timelines required by its exception regime.