When a private-equity firm or a larger competitor asks whether you would sell your company, you can talk without committing to anything. What you share, what you sign, and how you treat your co-owners in the next few weeks will shape the price and your legal exposure. Most of the process runs on contract law and deal practice, but Minnesota statutes shape several of the questions, including what trade-secret law protects, who must approve a sale, what co-owners owe each other, and when a seller’s noncompete survives the 2023 ban. In my practice advising owners on business sales and acquisitions, I suggest reading any letter of intent for which terms bind and what its structure commits you to before you sign it, because early documents often lock in terms that are hard to change.
How should I respond when a buyer first contacts me?
Respond briefly and commit to nothing. A short reply that thanks the buyer and asks it to put its interest in writing keeps the next step on your timeline. Do not name a price, describe recent performance, or share anything you would not post on your website. If one person handles every contact with the buyer, you avoid leaks and mixed signals from side conversations with managers or co-owners.
If your company is a corporation with a board, Minnesota’s statute expressly lets the directors weigh staying independent. A director deciding what serves the corporation may consider, among other things, the interests of employees, customers, suppliers, and creditors, and “the long-term as well as short-term interests of the corporation and its shareholders including the possibility that these interests may be best served by the continued independence of the corporation” (Minn. Stat. § 302A.251, subd. 5). For the rest of the standard a board is held to, see the duties Minnesota directors owe.
How do I tell whether a buyer is serious?
A serious buyer can answer four questions plainly: who controls the money, what it has bought and closed before, how it would pay you, and what it plans to do with your company and your people. A private-equity fund with committed capital, an independent sponsor that must raise money for each deal, and an operating company buying with its own balance sheet carry very different risks of failing to close, even when their headline numbers match. Ask for the names of owners who sold to this buyer, and call them; how the buyer behaved between the letter of intent and the closing tells you more than its pitch does.
Confirm who is calling: an intermediary may represent an unnamed buyer or may be looking for a listing, so ask whom it represents and how it is paid. If the buyer is a private-equity fund, ask whether your company would be its first in your industry or an add-on to a company it already owns, and what that means for your team and your role. A buyer that will not say who it is or where its money comes from, yet asks for your financial statements, has shown you how it will treat the rest of the deal.
What can I share with a buyer before an NDA is signed?
Before a nondisclosure agreement (“NDA”) is signed, share only what you would publish: what your company does, the markets it serves, and perhaps a revenue range. Keep financial statements, customer names, pricing, margins, employee pay, and technical know-how out of the conversation. Trade-secret protection depends partly on your own conduct. Under the Minnesota Uniform Trade Secrets Act (“MUTSA”), information qualifies as a trade secret only if it meets two conditions. It must derive “independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use,” and it must be “the subject of efforts that are reasonable under the circumstances to maintain its secrecy” (Minn. Stat. § 325C.01, subd. 5).
Because reasonable secrecy efforts are part of MUTSA’s definition, an unprotected disclosure to a would-be buyer gives anyone you later accuse of misusing the information an argument that it was never a trade secret. The federal Defend Trade Secrets Act (“DTSA”) works the same way: its definition requires that the owner “has taken reasonable measures to keep such information secret” (18 U.S.C. § 1839(3)(A)). When a larger company asks an owner for financial information, my first suggestion is to have a confidentiality agreement signed before anything goes out. A one-page summary you write yourself, without customer names or detailed numbers, is enough to test a buyer’s interest in the meantime. If the buyer competes with your company, the NDA is not the only safeguard: Federal Trade Commission staff guidance recommends sharing competitively sensitive information, such as prices, costs, and strategic plans, only as needed for diligence, in aggregated form, and through clean teams.
What should an NDA with a prospective buyer cover?
An NDA with a prospective buyer should limit the buyer’s use of your information to evaluating this transaction, name who on the buyer’s side may see it, and bar the buyer from contacting your employees, customers, and suppliers without your consent. It should also:
- Bar the buyer from soliciting or hiring your people for a set period.
- Keep the fact of your discussions confidential.
- Require the buyer to return or destroy your information on request.
- Confirm that you may ask a court to stop a breach.
- Exclude any “residuals” clause, which lets the buyer’s people use information they retain in memory.
If the would-be buyer is a customer that hires your company for services, the term barring it from soliciting or hiring your people may be unenforceable. Under Minnesota law, no service provider may “restrict, restrain, or prohibit in any way a customer from directly or indirectly soliciting or hiring an employee of a service provider” (Minn. Stat. § 181.9881, subd. 2).
The NDA also does legal work beyond the contract claim it gives you. Under MUTSA, misappropriation includes using or disclosing another’s trade secret, without express or implied consent, by a person who, at the time, knew or had reason to know that its knowledge was “acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use” (Minn. Stat. § 325C.01, subd. 3). A signed NDA is the most direct evidence of that duty. The DTSA adds a federal claim when the secret “is related to a product or service used in, or intended for use in, interstate or foreign commerce” (18 U.S.C. § 1836(b)(1)). If the buyer sends its own form, read it as a document written to protect the buyer, and compare it with what makes a Minnesota NDA enforceable.
How do I test the offered price without an investment banker?
Test the offered price by converting the headline number into the cash you will actually keep. Ask how much is paid at closing and how much comes later, through an escrow or holdback, an earnout, a seller note, or equity you roll into the buyer’s company. Ask what comes out of the price before you are paid: debt the business must retire, a working-capital adjustment, and transaction costs. Then ask the buyer to show its math, meaning the earnings figure it used, the adjustments it made, and the multiple it applied. A buyer with a real number can explain how it got there.
The deferred pieces carry risks the cash does not. An earnout depends on performance after the buyer controls the business (see how earnouts work in a Minnesota sale), and a seller note is only as good as the buyer’s ability to pay it. The same price can also leave you with very different amounts after tax depending on the deal’s structure, which Minnesota tax structuring for a business sale walks through. At this step I point owners to two other professionals. A credentialed business valuator can judge whether the price is sound, a valuator’s question rather than a lawyer’s, and the company’s certified public accountant (“CPA”) can model the tax consequences of each structure. The structure that minimizes tax is not always the one that limits liability, so I suggest weighing each structure’s tax effects and liability effects together before you commit.
How do exclusivity and no-shop terms in a letter of intent work?
An exclusivity or “no-shop” term in a letter of intent is your agreement to stop talking with other buyers for a set period while this buyer does its diligence. In my experience, a letter of intent mixes terms that bind you, such as confidentiality and exclusivity, with terms that stay non-binding until a definitive purchase agreement, so exclusivity is often the first real commitment you make. Once you sign it, any request for a lower price after diligence will come while you have no other buyer at the table. Keep the period short, tie it to the buyer’s progress, and end it automatically if the buyer lowers its price.
Whether a term binds depends on what the letter says. In Hansen v. Phillips Beverage Co., 487 N.W.2d 925, 926-27 (Minn. Ct. App. 1992), a letter of intent stated that it “shall not be a binding legal agreement,” and the same paragraph said the parties “agree to terminate negotiations with other prospective purchasers.” When the would-be buyers sued, claiming the seller had kept negotiating with others, the Minnesota Court of Appeals held that the parties had “clearly indicated an intent not to be bound” and that “no separate contract rights arise based upon a separate sentence contained in the same paragraph as the clear disclaimer.” In a footnote, the court added that the buyers had not argued promissory estoppel and that it did “not reject promissory estoppel liability on these facts.” The court declined to decide that theory because it was not raised at trial, and noted that any recovery there “would have been limited to reliance damages.”
A letter of intent should therefore list exactly which provisions bind and state that the rest do not; when a letter of intent binds in Minnesota covers the broader rules.
Who has to approve the sale of a Minnesota corporation or LLC?
A sale of substantially all of a Minnesota corporation’s assets needs its board and the holders of a majority of the shareholder voting power, while the same sale by a Minnesota limited liability company (“LLC”) needs every member’s consent by default. In the corporation, a sale of all or substantially all of the company’s assets outside the usual and regular course of business needs approval by a majority of the directors present and “the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote” (Minn. Stat. § 302A.661, subd. 2(a)). In the LLC, selling all or substantially all of the company’s property outside the ordinary course of its activities, or approving a merger, takes the consent of all members by default (Minn. Stat. § 322C.0407, subds. 2(4), 3(4), and 4(16); Minn. Stat. § 322C.1003, subd. 1).
| What the buyer is buying | Minnesota corporation (default) | Minnesota LLC (default) |
|---|---|---|
| All or substantially all of the assets | Board approval and a majority of the shareholder voting power; an objecting shareholder may dissent and be paid fair value, with exceptions that include certain cash sales and sales in dissolution or under a court order | Consent of all members |
| The owners’ shares or membership interests | Each owner decides whether to sell, subject to any shareholder agreement and to a statutory share exchange approved by the board and a majority of the shareholder voting power | Each owner decides whether to sell, subject to the operating agreement; by default, a buyer not admitted as a member gets no right to participate in managing or conducting the company’s activities (Minn. Stat. § 322C.0502, subd. 1) |
| The company, by merger | Board approval and a majority of the voting power of all shares entitled to vote (Minn. Stat. § 302A.613, subds. 1-2), binding all shareholders; an objecting shareholder generally may dissent and be paid fair value | Consent of all members (Minn. Stat. § 322C.1003, subd. 1) |
A corporate buyer can also acquire all of the outstanding shares of a class or series through a statutory plan of exchange (Minn. Stat. § 302A.601, subd. 2), which your corporation’s board and shareholders approve under the same vote rule as a merger (Minn. Stat. § 302A.613, subds. 1-2). When a merger or exchange takes effect, the holders of the affected shares, including any who voted no, “are entitled only to the securities, money, or other property” the plan provides, “subject to any dissenter’s rights under section 302A.471” (Minn. Stat. § 302A.641, subd. 3).
A corporate shareholder who dissents may “obtain payment for the fair value” of the shares (Minn. Stat. § 302A.471, subd. 1). When the shareholders vote at a meeting, exercising that right requires filing with the corporation, before the vote, a written notice of intent to demand fair value and not voting the shares in favor (Minn. Stat. § 302A.473, subd. 3). After approval, the corporation sends a notice with a payment-demand form. To be paid, the dissenter “must demand payment and deposit certificated shares or comply with any restrictions on transfer of uncertificated shares” within the period the statute sets, which runs from the date that notice is given (Minn. Stat. § 302A.473, subd. 4). A shareholder with that right cannot have the deal set aside unless it “is fraudulent with regard to the complaining shareholder or the corporation” (Minn. Stat. § 302A.471, subd. 4).
The LLC unanimity rule is a default, because the statute’s rules govern a matter only to the extent the operating agreement does not provide otherwise (Minn. Stat. § 322C.0110, subd. 2), so read your operating agreement first. A buy-sell agreement may give co-owners a right of first refusal, let a majority force a sale (a “drag-along”), or let a minority join one (a “tag-along”). In a court case seeking equitable relief, dissolution, or a buyout in a closely held corporation, written agreements among shareholders or with the corporation, including buy-sell agreements, “are presumed to reflect the parties’ reasonable expectations concerning matters dealt with in the agreements” (Minn. Stat. § 302A.751, subd. 3a). That presumption is a corporate rule; in an LLC, the operating agreement governs relations among the members as members and between the members and the company, with the LLC statute filling any gaps and barring certain terms (Minn. Stat. § 322C.0110, subd. 1). Whether the buyer proposes a stock sale or an asset sale decides which rules apply.
What do I owe my co-owners while a buyer is interested?
If you co-own a closely held corporation or an LLC, Minnesota law expects honest, fair dealing with your co-owners in operating the company and in exercising your rights as an owner, including while a buyer is interested. Shareholders in a close corporation and members of a member-managed LLC also owe disclosure of material information; in a manager- or board-managed LLC, the company must give members the material information it knows before they consent. Shareholders in a closely held Minnesota corporation owe one another a duty “to act in an honest, fair, and reasonable manner in the operation of the corporation,” which a court must take into consideration in deciding whether to order relief in a shareholder dispute (Minn. Stat. § 302A.751, subd. 3a). Every member of a Minnesota LLC must discharge its duties and exercise any rights under the LLC statute or the operating agreement consistently with the contractual obligation of good faith and fair dealing, including acting in a manner “that is honest, fair, and reasonable” in light of the operating agreement (Minn. Stat. § 322C.0409, subd. 4).
Close Corporations: When an Offer Becomes Material
The Minnesota Court of Appeals has held that “the fiduciary duties of shareholders in a close corporation include the duty to disclose material information about the corporation” (Berreman v. West Publishing Co., 615 N.W.2d 362, 371 (Minn. Ct. App. 2000)). The court also held that the statute’s 35-shareholder definition of a closely held corporation did not displace the common-law definition of a close corporation, which “continues to apply for purposes of determining fiduciary relationships.” The common-law definition looks to a small number of shareholders, no ready market for the stock, and active shareholder participation in the business.
Berreman weighed “the indicated probability that the event will occur and the anticipated magnitude of the event,” and concluded that “tentative, speculative discussions about merger are not material.” There, directors had hired an investment bank to study the company’s options but had talked with no buyers when the company bought back a retiring shareholder’s stock, and the court found nothing material to disclose. In my view, a written offer from an identified buyer sits at a different point on that scale.
LLCs: Loyalty and Information Rights
In a member-managed LLC, each member’s duty of loyalty includes accounting for any benefit from “the appropriation of a limited liability company opportunity” and refraining from dealing with the company “in the conduct or winding up of the company’s activities as or on behalf of a person having an interest adverse to the company” (Minn. Stat. § 322C.0409, subd. 2). In a manager-managed LLC, those duties fall on the managers, and in a board-managed LLC, on the governors (Minn. Stat. § 322C.0409, subds. 7 and 8). In manager-managed and board-managed LLCs, a member “does not have any fiduciary duty to the company or to any other member solely by reason of being a member” (Minn. Stat. § 322C.0409, subds. 7(5) and 8(5)).
A member-managed company, and each member who knows the information, must furnish other members “without demand” information that the company knows and that is “material to the proper exercise of the member’s rights and duties,” except to the extent the company can establish that it reasonably believes the member already knows it (Minn. Stat. § 322C.0410, subd. 1). In manager-managed and board-managed companies, that information right and sharing duty “apply to the managers or governors and not the members” (Minn. Stat. § 322C.0410, subd. 2(1)). Members of those companies must still receive “all information that is known to the company and is material to the member’s decision” before they consent (Minn. Stat. § 322C.0410, subd. 2(4)). The company may impose reasonable restrictions on access to and use of that information, including designating it confidential and requiring nondisclosure, and it bears the burden of proving a challenged restriction reasonable (Minn. Stat. § 322C.0410, subd. 7).
Side Deals with the Buyer
The risk peaks when one owner gets something from the buyer that the others do not: a consulting agreement, a higher price per share, or equity in the buyer’s company. I suggest disclosing any such benefit in full to your co-owners and getting their written approval. In an LLC, all of the members may authorize or ratify, “after full disclosure of all material facts,” a specific act or transaction that would otherwise violate the duty of loyalty (Minn. Stat. § 322C.0409, subd. 6).
An LLC’s operating agreement can change these rules within limits. It may set a method by which “one or more disinterested and independent persons” authorize or ratify such an act or transaction after full disclosure of all material facts, and, if not manifestly unreasonable, it may restrict or eliminate the specific loyalty duties described above. Except as the statute allows, it may not eliminate the duty of loyalty or the contractual obligation of good faith and fair dealing, and it may not unreasonably restrict the information duties and rights described above (Minn. Stat. § 322C.0110, subds. 3-5).
How does Minnesota’s noncompete ban apply when I sell my business?
Minnesota’s 2023 noncompete ban does not stop a buyer from asking you, as the seller, for a noncompete. The statute makes any covenant not to compete contained in a contract or agreement “void and unenforceable” (Minn. Stat. § 181.988, subd. 2(a)), but it preserves a covenant “agreed upon during the sale of a business.” The person selling the business, the partners, members, or shareholders, and the buyer “may agree on a temporary and geographically restricted covenant not to compete that will prohibit the seller of the business from carrying on a similar business within a reasonable geographic area and for a reasonable length of time” (Minn. Stat. § 181.988, subd. 2(b)(1)).
Expect the buyer to propose the covenant, and negotiate its scope: what counts as a “similar business,” which territory is reasonable, and how long it lasts. The ban reaches an agreement “between an employee and employer” that restricts the employee, after the employment ends, from performing certain work, and it counts independent contractors as employees (Minn. Stat. § 181.988, subd. 1(a), (c)). If you will keep working for the business or the buyer after closing, as an employee or independent contractor, your covenant can fit the ban’s definition. The sale-of-business exception can then keep it enforceable if the covenant is agreed upon during the sale and bars you only from carrying on a similar business within a reasonable geographic area and for a reasonable length of time.
The exception is written for the seller. A key employee who owns no part of the company is not selling anything, and for agreements entered into on or after July 1, 2023, the ban reaches that employee’s noncompete (2023 Minn. Laws ch. 53, art. 6, § 1). The statute’s definition of a covenant not to compete excludes nondisclosure and nonsolicitation agreements (Minn. Stat. § 181.988, subd. 1(a)), so buyers limit the harm of a key employee’s departure with those agreements, and make a departure less likely with pay or equity that vests if the employee stays. In my experience, the protections that matter most for key talent are largely settled by the time the letter of intent arrives, so review your employee agreements before you discuss price.
What does each advisor contribute to a sale?
Three advisors cover most of an owner’s side of a sale: a business attorney for the NDA, letter of intent, co-owner approvals, deal structure, and purchase agreement; the company’s CPA for each structure’s tax consequences and diligence-ready financial statements; and a credentialed business valuator when price is the open question. Add an investment banker or merger-and-acquisition advisor if you decide to invite competing bids, and a financial planner for what the proceeds must do after closing.
A banker’s contribution is a competitive process, which can raise the price but also lengthens the timeline and widens the circle of people who know the company is for sale. Ask how each advisor is paid, because a fee earned only at closing gives that advisor a reason to want the deal to close. Minnesota law generally treats anyone paid to buy, sell, or negotiate the sale of a business, or an interest in one, for someone else as a real estate broker, who must be licensed (Minn. Stat. § 82.55, subd. 19(d); Minn. Stat. § 82.81, subd. 1). The definition excludes several groups, including, subject to conditions, licensed practicing attorneys, accountants acting incident to their accounting practice, and securities broker-dealers and agents licensed under chapter 80A who take part in a business sale or merger (Minn. Stat. § 82.56(a), (m), (n)). I suggest asking any business broker or banker you consider which of those licenses it holds.
Before you commit to one buyer, and based on your goals for price, timing, and your employees, compare the other exits open to you, such as a sale to your management team or a sale to an employee stock ownership plan.
What if the buyer only wants to buy my share of the LLC?
By default in Minnesota, the buyer can buy your transferable interest but gets no right to participate in managing or conducting the company’s activities (Minn. Stat. § 322C.0502, subd. 1). It becomes a member only through a route the statute lists, such as the operating agreement or every member’s consent (Minn. Stat. § 322C.0401, subd. 4). A transfer that breaks an operating-agreement restriction is ineffective against a buyer with notice of the restriction when the transfer occurs (Minn. Stat. § 322C.0502, subd. 6). You generally keep your other member rights and all member duties and obligations (Minn. Stat. § 322C.0502, subd. 7).
Can a buyer use what it learned in diligence if the deal falls apart?
Not lawfully, if what it learned is a trade secret you shared under an NDA, unless the NDA permits that use. Minnesota’s Uniform Trade Secrets Act treats use or disclosure without consent, by a person who, at the time of the use or disclosure, knew or had reason to know that it acquired the secret under circumstances giving rise to a duty to maintain its secrecy or limit its use, as misappropriation (Minn. Stat. § 325C.01, subd. 3). The act does not affect your NDA contract claim (Minn. Stat. § 325C.07(b)(1)). Other information depends mainly on the NDA’s terms.
Should I share customer and pricing data with a competitor who wants to buy?
Only late in the process, only as much as the buyer needs, and only with safeguards. Federal Trade Commission staff guidance on information sharing before a merger warns of antitrust risk when the parties compete, and recommends sharing the least information needed for diligence, masking customer identities, aggregating competitive information, and using clean teams that exclude anyone responsible for pricing or strategy. Those steps are also evidence of the reasonable secrecy efforts that Minnesota’s trade secret act makes part of the definition of a trade secret (Minn. Stat. § 325C.01, subd. 5).
Can either side walk away after signing a letter of intent?
Usually yes, as to the deal itself, when the letter clearly says its deal terms bind no one until a definitive purchase agreement is signed. In Hansen v. Phillips Beverage Co. (Minn. Ct. App. 1992), the court held that no contract existed where the parties had, by their letter of intent, “clearly indicated an intent not to be bound.” Provisions the letter makes binding, such as confidentiality or exclusivity, still bind whoever walks away. A party that relied on the other side’s promises may still claim reliance damages under promissory estoppel, a theory the same court left open.
Should I tell my key employees that a buyer has called?
Tell them when you need their help and the deal is real, because early news can reach customers and competitors and an anxious key employee may leave before closing. Ask anyone you bring in to sign a confidentiality agreement, paired with something new such as a bonus, because an agreement signed mid-employment may need consideration beyond continued employment. Minnesota’s 2023 noncompete ban does not reach nondisclosure agreements (Minn. Stat. § 181.988, subd. 1(a)). Pay or equity that vests at or after closing can keep the people the buyer is counting on, and the buyer may ask to meet them later in diligence.
Whether or not you sell, the same steps protect you: answer on your timeline, get an NDA signed before your numbers leave the building, read the letter of intent for what binds, and treat your co-owners the way Minnesota’s corporation and LLC statutes expect. For how the rest of a sale unfolds, see my Minnesota business sales practice. If a buyer has contacted you and you would like a second set of eyes on the NDA, the letter of intent, or your co-owner obligations, email Aaron Hall at [email protected] with a short description of the offer and your ownership structure, and hold any confidential deal documents until a conflict check is complete.
