When founders sell their companies, the scope of legal work usually focuses on the share sale and purchase agreement (SPA).

The disclosure letter is sometimes treated as secondary to the SPA but it should not have been the case.

The disclosure letter sets out the exceptions to the sellers’ representations and warranties. If it is poorly prepared or does not contain the level of details required, the protection the sellers think they have would not hold up.

Preparing a disclosure letter properly requires legal due diligence on the target company. It is a separate piece of work and should not be seen as a by-product of reviewing the SPA.

In my experience, when the target companies or sellers are public listed companies, the risk is well understood and lawyers are involved in preparing the disclosure letter.

However, in some other cases, sellers may not be willing to incur legal costs for this part of work. Some founders selling for the first time do not realise a separate disclosure letter is needed until negotiations for the SPA are nearly over, which is when the disclosure letter is brought up and rushed through.

In a deal where I acted for the buyer, the seller’s lawyer’s scope did not extend to the disclosure letter. The founder prepared and negotiated the disclosure letter himself. We flagged to him what needed to be covered and how but our role there was limited, since we acted for the other side.

A disclosure letter prepared under time pressure, without legal input, may not protect the sellers.

Founders selling their businesses for the first time should consider extending the scope of legal work to include limited legal due diligence on the target companies and preparation of disclosure letter. It is the sellers’ defence for any claim for misrepresentations by the buyer.

This post was first posted on LinkedIn on 19 August 2026.