Part of the series, Doing Business in the United States: A Legal and Strategic Guide for Israeli Companies
by Michael Ehrenstein, Attorney-at-Law
A successful exit is the dream of many entrepreneurs. After years of hard work, investment, and sacrifice, the moment of selling the company can mark a peak in one’s career. To ensure that this process ends successfully, it is crucial to arrive well prepared from a legal perspective.
Mergers, acquisitions, and public offerings are financial events as well as complex legal journeys. Prior to a merger, acquisition, or IPO, potential buyers conduct a due diligence review that penetrates every corner of the organization. They examine contracts, intellectual property, prior employment agreements, regulatory compliance, and even email correspondence.
Due diligence can derail a deal, and any weakness that is revealed may reduce its value or cause the transaction to collapse altogether. Before you go into the selling process, it’s important to conduct a thorough internal review to ensure you are not legally exposed and that you have the ability to secure your operations for years to come. It’s crucial to arrive without surprises and to be aware of the areas where you may be vulnerable, including relationships with customers and suppliers. Your contracts and commitments with them are as much of an asset as your holdings and IP, and any issue discovered with them could cost you in the deal.
Benjamin Franklin once said that nothing in life is certain except death and taxes. An exit inevitably entails significant tax liability. Without proper planning, sellers may face double taxation – both in the United States and in Israel. While tax treaties provide relief, they require early planning and the correct corporate structure. It is therefore essential to prepare in advance and not wait until the signing stage.
Another challenge in every exit is the issue of representations and warranties, namely, the sellers’ declarations regarding the state of the company. An error in this area, even if made in good faith, may lead to demands for repayment after the deal has closed. This happened to an Israeli cyber company sold to an American defense contractor, which was forced to return about one-fifth of the purchase price after a licensing issue was discovered in one of its products.
An exit is not only the conclusion of a deal or a chapter but also a new beginning. The capital generated can be used to launch new ventures, to build credibility with future investors, and to continue innovating. To reach this stage smoothly, it is important for owners to adapt the company’s structure in advance, resolve contingent liabilities, and consult with international tax and legal advisors early in the preparation process.
With the right preparation, an exit becomes a secure bridge to the next stage of growth, enabling owners to move forward with confidence and stability toward their next opportunity.
Attorney Michael Ehrenstein is a founding partner at the American law firm Ehrenstein|Sager, which specializes in commercial law, complex litigation, and high-stakes international arbitration.
Legal Disclaimer: This article does not constitute legal or tax advice. Its purpose is to raise awareness of compliance issues in the U.S. Israeli businesses should consult qualified legal and tax professionals in the U.S. for guidance specific to their operations.