Are You a Legal Professional?

Due Diligence Checklist - Being Acquired

Also available in PDF | MS Word

So you have been approached by a potential acquirer of your business. Regardless of whether the deal is structured as an asset transaction, a stock transaction, or a merger, you can expect that the acquirer will want to conduct a detailed "due diligence investigation" of your company's finances and operations. The following is a checklist of information and documents you can expect the acquirer will want to review.

A. Organization and Good Standing

  • The Company's Articles of Incorporation, and all amendments
  • The Company's Bylaws, and all amendments
  • The Company's minute book, including all minutes and resolutions of shareholders and directors, executive committees, and other governing groups
  • The Company's organizational chart
  • The Company's list of shareholders and number of shares held by each
  • Copies of agreements relating to options, voting trusts, warrants, puts, calls, subscriptions, and convertible securities
  • A Certificate of Good Standing from the Secretary of State of the state where the Company is incorporated
  • Copies of active status reports in the state of incorporation for the last three years
  • A list of all states where the Company is authorized to do business and annual reports for the last three years
  • A list of all states, provinces, or countries where the Company owns or leases property, maintains employees, or conducts business
  • A list of all of the Company's assumed names and copies of registrations

B. Financial Information.

  • Audited financial statements for three years, together with Auditor's Reports
  • The most recent unaudited statements, with comparable statements to the prior year
  • Auditor's letters and replies for the past five years
  • The Company's credit report, if available
  • Any projections, capital budgets, and strategic plans
  • Analyst reports, if available
  • A schedule of all indebtedness and contingent liabilities
  • A schedule of inventory
  • A schedule of accounts receivable
  • A schedule of accounts payable
  • A description of depreciation and amortization methods and changes in accounting methods over the past five years
  • Any analysis of fixed and variable expenses
  • Any analysis of gross margins
  • The Company's general ledger
  • A description of the Company's internal control procedures

D. Physical Assets.

  • A schedule of fixed assets and their locations
  • All U.C.C. filings
  • All leases of equipment
  • A schedule of sales and purchases of major capital equipment during the last three years

E. Real Estate.

  • A schedule of the Company's business locations
  • Copies of all real estate leases, deeds, mortgages, title policies, surveys, zoning approvals, variances, or use permits

F. Intellectual Property.

  • A schedule of domestic and foreign patents and patent applications
  • A schedule of trademark and trade names
  • A schedule of copyrights
  • A description of important technical know-how
  • A description of methods used to protect trade secrets and know-how
  • Any "work for hire" agreements
  • A schedule and copies of all consulting agreements, agreements regarding inventions, licenses, or assignments of intellectual property to or from the Company
  • Any patent clearance documents
  • A schedule and summary of any claims or threatened claims by or against the Company regarding intellectual property

G. Employees and Employee Benefits.

  • A list of employees including positions, current salaries, salaries, and bonuses paid during last three years, and years of service
  • All employment, consulting, nondisclosure, nonsolicitation, or noncompetition agreements between the Company and any of its employees
  • Resumes of key employees
  • The Company's personnel handbook and a schedule of all employee benefits and holiday, vacation, and sick leave policies
  • Summary plan descriptions of qualified and nonqualified retirement plans
  • Copies of collective bargaining agreements, if any
  • A description of all employee problems within the last three years, including alleged wrongful termination, harassment, and discrimination
  • A description of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the last three years
  • A list and description of benefits of all employee health and welfare insurance policies or self-funded arrangements
  • A description of worker's compensation claim history
  • A description of unemployment insurance claims history
  • Copies of all stock option and stock purchase plans and a schedule of grants

H. Licenses and Permits.

  • Copies of any governmental licenses, permits, or consents
  • Any correspondence or documents relating to any proceedings of any regulatory agency

I. Environmental Issues.

  • Environmental audits, if any, for each property leased by the Company
  • A listing of hazardous substances used in the Company's operations
  • A description of the Company's disposal methods
  • A list of environmental permits and licenses
  • Copies of all correspondence, notices, and files related to EPA, state, or local regulatory agencies
  • A list identifying and describing any environmental litigation or investigations
  • A list identifying and describing any known Superfund exposure
  • A list identifying and describing any contingent environmental liabilities or continuing indemnification obligations

J. Taxes.

  • Federal, state, local, and foreign income tax returns for the last three years
  • States sales tax returns for the last three years
  • Any audit and revenue agency reports
  • Any tax settlement documents for the last three years
  • Employment tax filings for three years
  • Excise tax filings for three years
  • Any tax liens

K. Material Contracts.

  • A schedule of all subsidiary, partnership, or joint venture relationships and obligations, with copies of all related agreements
  • Copies of all contracts between the Company and any officers, directors, five-percent shareholders, or affiliates
  • All loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party
  • All security agreements, mortgages, indentures, collateral pledges, and similar agreements, including guaranties to which the Company is a party, and any installment sale agreements
  • Any distribution agreements, sales representative agreements, marketing agreements, and supply agreements
  • Any letters of intent, contracts, and closing transcripts from any mergers, acquisitions, or divestitures within last five years
  • Any options and stock purchase agreements involving interests in other companies
  • The Company's standard quote, purchase order, invoice, and warranty forms
  • All nondisclosure or noncompetition agreements to which the Company is a party
  • All other material contracts

L. Product or Service Lines.

  • A list of all existing products or services and products or services under development
  • Copies of all correspondence and reports related to any regulatory approvals or disapprovals of any Company's products or services
  • A summary of all complaints or warranty claims
  • A summary of results of all tests, evaluations, studies, surveys, and other data regarding existing products or services and products or services under development

M. Customer Information.

  • A schedule of the Company's twelve largest customers in terms of sales thereto and a description of sales thereto over a period of two years
  • Any supply or service agreements
  • A description or copy of the Company's purchasing policies
  • A description or copy of the Company's credit policy
  • A schedule of unfilled orders
  • A list and explanation for any major customers lost over the last two years
  • All surveys and market research reports relevant to the Company or its products or services
  • The Company's current advertising programs, marketing plans, and budgets, and printed marketing materials
  • A description of the Company's major competitors

N. Litigation.

  • A schedule of all pending litigation
  • A description of any threatened litigation
  • Copies of insurance policies possibly providing coverage as to pending or threatened litigation
  • Documents relating to any injunctions, consent decrees, or settlements to which the Company is a party
  • A list of unsatisfied judgments

O. Insurance Coverage.

  • A schedule and copies of the Company's general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker's compensation, and other insurance
  • A schedule of the Company's insurance claims history for past three years

P. Professionals.

  • A schedule of all law firms, accounting firms, consulting firms, and similar professionals engaged by the Company during past five years

Q. Articles and Publicity.

  • Copies of all articles and press releases relating to the Company within the past three years
Next Steps
Contact a qualified business attorney to help you tie up all
loose ends when closing your business.
(e.g., Chicago, IL or 60611)

Help Me Find a Do-It-Yourself Solution