What Tax and Legal Paperwork Should You Expect After Selling Your Company?

For many founders, the sale of a company is the culmination of years—sometimes decades—of work. But while the wire transfer may signal the end of one chapter, the post-closing period often brings a new set of responsibilities, particularly around tax filings, legal compliance, and deal mechanics like escrow and earn-outs. Understanding what lies ahead can help you avoid costly surprises and ensure a clean transition.

This article outlines the key tax and legal documents you should be prepared to manage after selling your software or technology business, with a focus on the months following the transaction close.

1. Final Tax Filings and Capital Gains Reporting

One of the most immediate post-sale obligations is reporting the transaction to the IRS and your state tax authority. The nature of your tax filings will depend on how the deal was structured—whether it was an asset sale or a stock sale—and your entity type (C-corp, S-corp, LLC, etc.).

• Capital Gains Tax: If you sold equity, the gain is typically taxed as a long-term capital gain (assuming you held the shares for more than a year). For federal purposes, this is currently taxed at up to 20%, plus the 3.8% Net Investment Income Tax for high earners.
• Form 8949 and Schedule D: These IRS forms are used to report the sale of capital assets. You’ll need to provide details such as the date of acquisition, date of sale, cost basis, and proceeds.
• State Taxes: Some states, like California and New York, impose their own capital gains taxes. Be sure to consult a tax advisor familiar with your jurisdiction.

For more on how tax law changes may affect your sale, see Tax Law Changes and the Impact on Personal Taxes from Selling a Software Company.

2. Escrow Releases and Contingent Consideration

Most M&A deals include an escrow holdback—typically 10% to 15% of the purchase price—to cover post-closing indemnification claims. These funds are usually held for 12 to 24 months and released in tranches, assuming no claims are made.

After closing, you’ll need to:

• Track the escrow release schedule and ensure you receive timely disbursements.
• Respond to any buyer claims that may affect the release of funds.
• Coordinate with your legal counsel to resolve disputes, if any arise.

Escrow releases are not always straightforward. For example, if the buyer alleges a breach of representation or warranty, they may file a claim against the escrow. This is where having a well-negotiated reps and warranties section in your purchase agreement becomes critical.

3. Earn-Out Agreements and Performance-Based Payouts

Earn-outs—where a portion of the purchase price is contingent on future performance—are common in software and SaaS transactions, especially when valuation gaps exist. These agreements can span 12 to 36 months and are often tied to revenue, EBITDA, or customer retention metrics.

Post-sale, you’ll need to:

• Monitor performance metrics and ensure accurate reporting to the buyer.
• Review earn-out calculations and dispute resolution mechanisms.
• Stay involved operationally (if required) to influence outcomes.

As we discussed in How Do I Handle Earn-Outs in the Sale of My Software Business?, clarity in the earn-out structure and post-closing governance is essential to avoid misalignment or litigation.

4. Allocation of Purchase Price and IRS Form 8594

In asset sales, the buyer and seller must agree on how the purchase price is allocated across various asset classes (e.g., tangible assets, goodwill, IP). This allocation affects the tax treatment for both parties and must be reported on IRS Form 8594.

Disagreements over allocation can lead to audits or penalties. That’s why firms like iMerge work closely with both parties to ensure alignment and defensibility in the allocation schedule. For more, see Mergers & Acquisitions: Allocation of Purchase Price Disagreements.

5. Legal Compliance and Post-Closing Covenants

Beyond taxes, sellers often have ongoing legal obligations after closing. These may include:

• Non-compete and non-solicitation agreements: Ensure you understand the scope and duration of any restrictive covenants.
• Transition services agreements (TSAs): If you’ve agreed to provide operational support post-close, these obligations must be fulfilled as outlined.
• IP assignments and consents: Some intellectual property transfers may require additional filings or third-party approvals post-closing.

Failure to comply with these covenants can trigger indemnification claims or clawbacks, so it’s important to stay organized and proactive.

6. Recordkeeping and Audit Preparedness

Even after the deal closes, you should retain all transaction-related documents for at least seven years. This includes:

• Final purchase agreement and all exhibits
• Tax filings and allocation schedules
• Escrow and earn-out documentation
• Board and shareholder approvals

In the event of an IRS audit or buyer dispute, having a well-organized archive can save time, money, and legal exposure.

7. Personal Financial Planning and Estate Considerations

Finally, a liquidity event of this magnitude often triggers a need for personal financial planning. You may want to:

• Establish or update trusts and estate plans
• Explore charitable giving strategies (e.g., donor-advised funds)
• Rebalance your investment portfolio to reflect new risk tolerances

Many founders underestimate the complexity of post-sale wealth management. Engaging a tax advisor and estate attorney early can help you preserve and grow your proceeds efficiently.

Conclusion

Selling your company is a major milestone—but it’s not the end of the story. From tax filings and escrow releases to earn-out tracking and legal compliance, the post-closing period requires careful attention and strategic foresight.

Firms like iMerge specialize in helping software and technology founders navigate these complexities, not just during the transaction, but in the months and years that follow. Whether you’re preparing for an exit or managing the aftermath of a recent sale, having the right advisors in your corner can make all the difference.

Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.