How to get out of an an option contract

I am an owner of a business startup. We have received an option contract from a buyer to buy our business subject to due diligence with an open-ended expiry date. The terms are they will provide loan, pay the staff, provide a monthly budget as a "going concern" business to reach positive revenue state. The directors of the company already spent 4 weeks and none of the above has been fulfilled. Buyer is just asking for more documentations we do not have and must produce. I would like to get out of the option contract so we can act on other offers before the business die. Can we (the seller) willingly fail the due diligence ?

Answers (2)

278 votes

The most important question here is to check if there is any exclusivity term in your Term Sheet / Memorandum of Understanding / Letter of Intent etc., that specificially restricts you from engaging with any other potential investor or buyer. These restrictions may or may not be time bound. Normally, early stage investments do not take a significant time for due diligence unless there are serious flaws or gaps in record keeping. In any case, the option to exit from any potential arrangement would depend solely on what has been agreed upon. Generally, there are exclusivity periods within which the diligence is completed, and depending on the agreed terms, you can terminate the existing arrangement or simultaneously search for other investors.

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295 votes

You can anyday refuse to oblige the contract and hence it will come before dispute resolution forum (either arbitration or court). This way you will get time, will be able to save your business and also will be able to avoid all obligations for a certain period of time till tge dispute is before adjudicating authorities. In case you win your case then you will be absolved from all obligations arising out of this contract.
Or else use the exit clause of the contract and get this deal closed without wasting further time and money on the same.

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