Preparing Your Company for Sale: Legal, Financial and Tax Steps to Maximise Value
Selling a company is not just a click of a button. Five to twelve months of preparation can increase your company’s value by tens of percent and prevent the buyer from cutting the price at the last minute due to legal, financial, or operational shortcomings. In this article, we focus on specific steps that the company’s owners and management must take to prepare for an exit like professionals—and to avoid mistakes that cost millions.
Table of contents
Why prepare for an exit in advance
Selling a company is not something you do in the last four weeks. The reality is different: if you start preparing your company a month before launching the sale process, you will be at a significant disadvantage compared to the competition.
Why? Because professional buyers (private equity funds, strategic acquirers, investment groups) carry out so-called due diligence – an in-depth review of virtually everything related to your company.
Professional buyers are interested in the legal history and all contracts, as well as accounting records for the last five years and litigation or potential legal risks. They also examine the company’s compliance with legal regulations, the quality of management and dependence on key individuals, and the state of the customer and supplier base. They also focus on hidden liabilities and risks and the overall tax history, including declared or undeclared receivables.
If you are not prepared, one of two things will happen. Either the buyer will significantly reduce the price because they will take the risk on themselves, or the transaction will fall through if they identify insurmountable legal or commercial issues.
Either outcome will complicate the sale or cost you tens to hundreds of millions of Czech crowns from the potential price. A twelve-month preparation period gives you time to fix it all.
What buyers will review: due diligence in practice
The term due diligence means careful prior examination. In the context of selling a company, it is a methodical collection and verification of all available information about your company.
Legal due diligence
The buyer will have ownership title and the shareholder structure reviewed. It is important whether all shares are clearly registered and whether there are any hidden pledges or third-party rights to shares or assets. It is also reviewed whether any real estate used by the company is still in the founder’s personal ownership.
All contracts with customers, suppliers, partners, employees, lease agreements, loans and insurance policies are examined in detail. It is verified whether they are signed, in order, and whether they contain clauses that could be a barrier for a new owner.
Litigation and legal risks are also reviewed. If disputed claims or threatened lawsuits come to light during the review, it is usually advisable to set a strategy in advance for resolving them within commercial and court disputes. The buyer is interested in whether the company has active disputes, whether the owner or management has been accused in the past, and whether there are regulatory issues, sanctions from authorities, or environmental burdens.
If the company carries out a regulated activity, it is necessary to verify that it has all required licences and permits, and that they are in order. In employment-law and social aspects, it is checked whether all employment contracts are in order and whether there are any obligations that the new owner would have to assume, such as employee pension plans or above-standard benefits.
Financial and accounting due diligence
The buyer is interested in the accuracy of the accounts, whether audits are in order, and whether there are any adjustments the buyer should be aware of. The quality of revenues and profitability is also important – whether revenues have been stable, whether they depend on a single customer, and what the actual margin is.
An inventory of assets and liabilities is reviewed – i.e., what is on the balance sheet and what exists in reality. The tax history is checked to see whether all taxes have been paid and whether any year is missing or whether there are undeclared receivables. A practical view of when the conditions for tax deductibility of a loss on unpaid invoices can be met is also summarised in the related article Unpaid receivables in B2B: When can a loss on invoices be claimed as a tax-deductible expense.
Operational due diligence
From an operational perspective, the buyer examines the quality of management and dependence on key individuals. They want to know whether the company would function even after the owner or a key manager leaves.
Process documentation is reviewed – i.e., whether the company has documented procedures or whether everything exists only in people’s heads. The quality of the IT infrastructure and data security is also checked to identify risks when control is taken over by a new person.
Related questions on due diligence
1. How long does standard due diligence take?
Usually 6–12 weeks if you have the documents prepared. If we have to track them down, it becomes a matter of months. Our attorneys in Prague at ARROWS can speed up the process and ensure you have answers prepared for all questions.
2. Can the buyer cancel the transaction due to due diligence?
Yes. Due diligence is usually subject to a so-called exit clause (material adverse change clause), which allows the buyer to walk away from the purchase if they discover a major issue. In transaction documentation, these mechanisms are typically reflected in negotiations on warranties, indemnities and closing conditions, which falls within contracts and negotiations. That is why transparency and preparation are crucial.
3. Do I have to hide anything, or can I say everything?
You must be completely transparent. If you conceal an issue and the buyer later discovers it, they will have the right to claim damages or terminate the contract. That has a worse impact than transparency and addressing the issue in the preparation phase.
Legal and contractual preparation
Twelve months before the exit, you should review all key contracts and verify that they are in order. For planned reorganisations before a sale (e.g., a merger or demerger), it is also necessary to ensure tax neutrality, for which the article Tax implications of mergers and demergers: How to comply with the rules for tax neutrality may also be useful. These are the key areas.
Customer contracts
Review all material customer contracts. First and foremost, the buyer will want to know the following.
The buyer will want to know whether the customer base is stable and whether long-term contracts are tied to you personally. They will also be interested in whether the contracts contain any clauses that would exclude a new owner, such as provisions for automatic termination of the contract upon a change in the company’s ownership.
And also whether there are any exclusive rights for clients, such as the right to exclusive pricing terms or the right to interfere with the business. If there are problematic clauses in the contracts – and there often are – it is time to amend them or negotiate with clients. It is not pleasant, but it is better than discovering it during due diligence.
Supplier and partnership agreements
Likewise, review the contracts with your key suppliers and partners. The buyer will want to know the following.
They will be interested in whether the terms are secured for the long term and competitive. They will check whether there are any terms that would discriminate against the new owner. And they will verify that all licences and rights are in order.
Financial obligations
Go through all loans, leases and financial obligations. You need to know the following. You need to know which agreement requires the lender’s consent to the sale. Also, what the early repayment terms are, for example in the event of a change of ownership. And also whether there are any hidden fees or penalties.
Employment contracts
Verify key contracts with senior employees. The buyer will want to know the following.
The buyer will want to know that all contracts are in writing, clear and legally enforceable. Also, that there are no guarantees or benefits that would surprise the new owner. And whether there are so-called “golden handcuffs” in place that will motivate people to stay.
IP rights and ownership
If you have patents, registered designs, trademarks, copyrighted works – everything must be clearly registered and owned by your company.
If you developed something with in-house employees or on a contract basis, make sure you hold all rights. Information on the protection of intellectual property rights is available from the Industrial Property Office of the Czech Republic.
Related questions on legal preparation
1. Is it worth hiring a lawyer just to prepare for exits?
Absolutely. The attorneys at ARROWS, a Prague-based law firm, specialise in exit preparation. They can review your key contracts, identify risks and help you resolve them systematically. That is better than doing it in a rush or letting the buyer factor the issue into the price.
2. Do I have to change all contracts that I see as risky?
Not all of them. Some risks can be addressed with a discount; others are truly critical. ARROWS attorneys can help you with triage – what to address as a priority, what can be negotiated, and what needs to be changed.
3. How long does it take to change a problematic contract?
It depends on the type of contract. Typically 2–4 weeks if the other party is willing to negotiate. Sometimes months. That is why you need to plan for a twelve-month window.
Financial and accounting order
Your company’s accounting must be flawless. The buyer will have all the numbers reviewed – and if they find errors, inconsistencies or “creativity” in the accounts, the price will go down. Accounting requirements are set by the Ministry of Finance of the Czech Republic.
Key steps
The first key step is to have complete and accurate accounting. You need to check that all transactions are recorded, tax returns are correct, and that no unrecorded income or expenses have been made outside the official accounts.
The second step is audits and verification. If you have audits (mandatory or voluntary), check that they are in order and that they do not contain any auditor warnings. If you do not have audits, it is time to arrange them, at least a verified statement.
The third step is to review your tax history. Make sure all taxes have been paid, that there are no refunds you are waiting for, or, conversely, receivables claimed by the tax authorities. It is also important to know the outcome of any past tax audit.
The fourth step is correspondence with the tax office. Is all correspondence in order and are there any warnings? The fifth and final step is bank statements and revenues. Does the cash flow in the bank statements match the accounting, are there any large unexplained movements, and if you sell for cash, is it properly recorded?
Operational cleanliness and documentation
The buyer wants to obtain the “black box” of your company: to know exactly how it operates. If everything runs only in the owner’s head or in the head of one key employee, that is a risk.
If you have clear processes and documentation, that is a plus.
Key operational steps
The first step is process documentation. You should know how an order is accepted, how a project or service is delivered, how invoicing works, and what the approval processes are.
The second step is a risk and controls matrix. Identify the key risks in your company and what controls you have in place to minimise those risks. The third step is a clear organisational structure and key roles. Who is responsible for what, what are the dependencies, and what would happen if someone key left?
The fourth and final step is management quality. Does the team have the ability to run the company without you, and are there any talent gaps? If the answer is “no” – you have time to change something. You can hire a strong manager, train the team, or bring in an operating partner or consultant.
Related questions on operational preparation
1. Do I have to write a full process manual?
No, but you should have at least the key processes documented – ideally in a format that a new team can adopt quickly. ARROWS attorneys can help you structure what needs to be included in the documentation.
2. How do I deal with dependence on key employees?
This is a long-term investment. You should work to ensure that key people have clear roles, job descriptions and responsibilities, and that their knowledge is not embedded only in their heads. ARROWS attorneys can help you set up employment documentation under Czech legislation and an incentive structure so that key people stay even after the sale.
Tax and structural optimisation
There is potential for major savings here. The way you structure the sale and your tax strategy can affect your net proceeds by tens of percent.
Key decisions
The first key decision is whether it will be an asset sale or a share sale. An asset sale means you sell specific assets, receivables and liabilities. From the seller’s perspective, taxation on an asset sale is more complex and often less advantageous than on a share sale.
For the buyer, however, this type of transaction is usually more tax-efficient because they obtain a new tax basis for the assets. A share sale means you sell an interest in the corporation. In that case, the buyer takes on everything, including hidden liabilities. The price is usually higher, but the tax position is different and may include capital gains tax.
For sellers, especially individuals, a share sale may be more tax-efficient due to the possibility of a tax exemption. The rules for the sale of interests in business corporations are governed by Act No. 90/2012 Coll., on Business Corporations (Czech Republic).
The second important decision is personal income tax vs. corporate income tax. The tax implications differ depending on whether the seller is an individual, for example a member of an s.r.o. or a shareholder of an a.s., or a legal entity, such as a holding company.
In an s.r.o., so-called taxation at the company level and at the member or shareholder level may occur if the sale is not structured correctly.
The third decision is timing and staging of the sale. If you can spread the sale over multiple years, the tax impact may be lower. However, this must be realistically achievable and legally enforceable.
The fourth decision area involves settlement obligations and earn-out arrangements. Sometimes part of the purchase price is not paid immediately, but only depending on future results (earn-out), which has tax implications. Similarly, there may be settlement obligations (seller financing), where the seller provides the buyer with a loan.
Example
You have a limited liability company with a net profit of CZK 10 million per year. You sell it for CZK 50 million. If the seller is a legal entity, for example a holding company, the income from the sale of shares is taxed at the corporate income tax rate, which as of 2026 is 21%.
However, it is possible to apply an exemption for income from the sale of shares if the conditions set out by Act No. 586/1992 Coll., on Income Taxes are met, for example the holding regime for parent and subsidiary companies in the EU.
If your limited liability company is owned by an individual and that person sells the share, the situation is different.
In this case, personal income tax applies; however, it is necessary to take into account the tax exemption if the time test is met. As of 2026, the exemption applies if the shares have been held for more than five years for interests in business corporations that are not publicly traded, or three years for publicly traded securities. Alternatively, it may be another specific type of exemption under the Income Taxes Act.
If the conditions for the exemption are not met, the income is taxed at the standard personal income tax rates, i.e., 15%, or 23% for higher income.
The right tax strategy can save you millions. The lawyers and tax advisors at ARROWS, a Prague-based law firm, know how to work with these aspects. They can help you structure the sale so that your net proceeds are as high as possible.
Risks when preparing for an exit
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Potential issues |
How ARROWS helps (office@arws.cz) |
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The buyer discovers unresolved legal disputes or regulatory issues during due diligence |
We will set a strategy for you on how to resolve these issues or minimize their impact. In the worst case, we will ensure they are addressed, whether through court proceedings or negotiations with the relevant authority. |
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Key contracts contain clauses that discriminate against the new owner or jeopardize the transaction |
We will review all your contracts (with clients, suppliers, employees) and negotiate amendments with the counterparties. We have experience negotiating changes to contractual terms without damaging relationships. |
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The accounting contains errors, inconsistencies, or tax issues that the buyer discovers in an audit |
We will arrange a comprehensive legal and tax audit of your financial situation. If we identify issues, we will address them with your accountant and the relevant authorities. |
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The sale structure is not tax-optimal, so you lose tens of millions in taxes |
We will set a sale structuring strategy so that the tax burden is minimized. This means assessing whether you will sell shares or assets, what type of buyer it will be, and what the timing will be. |
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There are key people in the team whose roles rely only on informal know-how rather than documented processes, which reduces the company’s value for the buyer. |
We will help you document roles and responsibilities, ensure high-quality employment-law contracts for key people, and set incentive structures (golden handcuffs) that will motivate key employees to stay after the sale. |
Final summary
Twelve months of exit preparation is not unnecessary administrative burden—it is an investment that will pay off many times over. During this period, focus on three things.
The first is legal and contractual cleanliness. Review all important contracts, resolve disputes and risks, and make sure there are no unexpected surprises during the sale. The second is financial and accounting order. Verify that your numbers are correct, that all taxes have been paid, and that your financial statements would stand up to an auditor’s review. The third is operational and personnel strength. Document processes, ensure the company runs without you, and that you have a strong management team that will be attractive to the buyer.
If you do everything correctly, the price for your company can increase by 15–30 percent compared to a scenario where you prepare for an exit in a rush. That can mean tens to hundreds of millions of Czech crowns.
The attorneys at ARROWS, a Prague-based law firm, focus specifically on exit preparation and company sales. They know what buyers will be looking for and which risks to address. If you want to be sure you will not lose millions on your exit, or that the deal will not fall through due to legal obstacles, get in touch with us.
Send us a brief description of your situation and we will outline how we can help. Contact us at office@arws.cz.
FAQ - Most common questions about exit preparation
1. How much does exit preparation cost?
It depends on the size of your company, the complexity of the legal environment, and the number of issues we need to resolve. Typically, it ranges from hundreds of thousands to a few million Czech crowns, depending on the scope. In any case, it is certainly less than losing tens of percent of the price due to poor preparation. The attorneys at ARROWS, a Prague-based law firm, can give you a rough estimate during the first meeting.
2. Do I have to disclose that I want to sell the company?
You do not have to disclose it to anyone, not even employees or key clients. You can say you are conducting an “audit” or a “review” without indicating that you are preparing for a sale. ARROWS attorneys can work discreetly and without the matter spreading.
3. What if I discovered an issue during preparation?
That is good—it is better than the buyer discovering it in due diligence. You can then choose: either you try to resolve the issue, or you “carry it” into the sale and the buyer will factor it into a lower price, but without legal risk. The ARROWS attorneys can advise you on which route is best in the given case.
4. How do I handle the situation where there are loans on the company and we need to repay them from the sale?
This is a common situation. It is usually handled through an escrow—part of the price is deposited into a specific account and used to repay debts. The remaining part is paid out to you. The attorneys at ARROWS can structure such a sale so that your net proceeds are as high as possible.
5. What is the difference between exiting my company and selling real estate?
An exit sale of a company is much more complex. You are selling a legal entity with its entire history, liabilities, rights, and risks. A real estate sale is usually simpler—you are selling a specific asset. In an exit, you must address legal history, financial history, dependencies on personnel, and many other matters. ARROWS attorneys have experience with both types of transactions.
6. What happens if the buyer discovers an issue after the sale that I either did not know about or did not disclose to the buyer?
You may face potential legal and financial liability. In business sale agreements, so-called representations and warranties are typically agreed, which determine which issues the seller is responsible for. That is why it is important to be transparent and have everything documented. If you are unsure about something, it is better to disclose it during the sale than for the buyer to discover it later.
7. How long does it take to sell a company?
The sale process usually takes 3–9 months from the moment a buyer is found. Preparation takes 6–12 months. So from the thought “I want to sell” to completion of the transaction, you should expect 12–21 months. That is why it is important to start preparing in advance—so you have time to resolve all issues and the sale does not have to be handled urgently.
8. How much of the administration and negotiations will I take on if I hire a lawyer?
ARROWS attorneys in Prague will help you with legal and contractual preparation, but some matters must be handled by you. This includes, for example, communication with key employees and clients, negotiating commercial terms, or the final decision on whom you will sell the company to. However, the attorneys can handle part of the communication for you, especially regarding legal aspects.
9. How do I prepare for the buyer to conduct detailed due diligence and ask questions?
It is common to prepare with a lawyer for potential questions. ARROWS attorneys in Prague can provide you with a list of typical questions a buyer will ask, and you can prepare your answers. At the same time, you can learn how to present your company in the best possible way.
10. Are there any specific legal obligations in the Czech Republic when I sell a company?
Yes, in the Czech Republic there are specific legal obligations associated with selling a company—from proper filings in the Commercial Register and notifying the relevant authorities (including the tax office in connection with tax obligations) to notifying employees and, where applicable, coordinating with Labour Offices. Information on filings in the Commercial Register is available on the Justice portal. ARROWS attorneys in Prague will help you address all of these obligations.
11. What taxes will I pay on the sale of a company?
This varies depending on whether you are selling a limited liability company, a joint-stock company, or whether you are an individual. In the case of a sale of shares by a legal entity, such as a holding company, the corporate income tax rate as of 2026 is 21%. However, it is possible to apply an exemption for income from the sale of shares if the statutory conditions are met, for example under the so-called holding regime.
12. What if, during preparation, I find out that selling would be worse for me than continuing the business?
That is a legitimate finding. Preparing for a sale also helps you understand the value of your company, and you can then decide for yourself whether you want to sell it or continue the business. ARROWS attorneys in Prague can also help you gain a clear view of the state of your company and what you should improve in the business to increase its value.
Notice: The information contained in this article is of a general informational nature only and is intended to provide basic guidance on the topic under the legal framework as of 2026. Although we strive for maximum accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.
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