due-diligence-checklist

Due Diligence Checklist

Generates a structured, transaction-ready due diligence checklist for U.S. M&A and corporate transactions.

Quick Start

Collect before drafting:

1. Transaction type — merger, acquisition, asset purchase, investment, JV, or restructuring
2. Target — company name, incorporation/operation jurisdictions
3. Timeline — anticipated closing date
4. Scope — business units, subsidiaries, time periods, materiality thresholds
5. Priorities — known concerns, industry-specific risks, regulatory focus

Output each line item as: Item | Documents Requested | Received (Y/N/Partial) | Issues/Notes

Checklist Sections

1. Corporate Structure & Governance

• Formation docs (articles, bylaws, amendments), good standing certificates
• Cap table, stock ledger, shareholder agreements, voting trusts, transfer restrictions
• Subsidiary org chart with formation docs and ownership % for all subs/affiliates/JVs/VIEs
• Board and shareholder minutes (last 3 years); resolutions authorizing the transaction

Red flags: Governance irregularities, corporate formality gaps, piercing-the-veil risk, conflicted approvals.

2. Financial Records & Tax

• Audited financials (3–5 years): balance sheets, P&L, cash flow, footnotes, management letters
• Interim financials (current period + prior-year comparable)
• Tax returns (federal, state, local, foreign); audits, assessments, open examinations
• AR/AP aging, debt schedule with covenant compliance, off-balance-sheet obligations
• Revenue recognition policies, related-party transactions, restatements

Red flags: Covenant defaults, audit qualifications, restatements, contingent liabilities, aggressive revenue recognition.

3. Material Contracts

• Top customer/supplier contracts; change-of-control and consent provisions
• Distribution, franchise, dealer, referral agreements
• Real property leases (options, renewal, assignment restrictions); deeds for owned property
• Equipment/capital leases, financing arrangements
• Loan agreements, credit facilities, security agreements, guarantees
• JV agreements, partnership agreements, NDAs, settlement agreements

Red flags: Change-of-control triggers, consent requirements, acceleration clauses, unusual indemnification, oral agreements, post-termination obligations.

4. Intellectual Property & Technology

• Registered IP: patents, trademarks, copyrights, domain names
• Trade secrets, know-how, common law marks
• All IP licenses (in/out): exclusivity, territory, royalties, termination rights
• Assignment agreements from founders, employees, contractors
• Software licenses (proprietary + open source), SaaS/cloud agreements, DPAs

Red flags: Unassigned founder IP, GPL/AGPL copyleft conflicts, freedom-to-operate gaps, missing work-for-hire agreements.

5. Litigation & Regulatory

• Pending lawsuits, arbitrations, mediations (status + exposure)
• Demand letters, cease-and-desist, threatened claims
• Agency investigations, consent decrees, administrative proceedings
• Settlement agreements, ongoing monitoring obligations
• Operating licenses/permits (expiration, violations)
• Regulatory compliance: antitrust, export controls, FCPA/UK Bribery Act
• Data privacy: GDPR, CCPA, HIPAA — policies, breach history, DPAs
• Whistleblower complaints, internal investigations

Red flags: Unquantified exposure, systemic compliance failures, successor liability risk, required regulatory approvals for closing.

6. Employment, Labor & Benefits

• Employee census: headcount by role, compensation, location, status (EE/contractor/PT)
• Key employee agreements, offer letters, severance, equity grants
• Non-competes, non-solicits, confidentiality agreements
• Employee handbook, leave policies (FMLA, state leave)
• 401(k)/pension docs, Form 5500, funding status; health/welfare plan summaries
• Equity plans (options, RSA/RSU), vesting schedules; bonus/commission plans
• Union contracts, CBAs, NLRB charges
• Employment claims: discrimination, wage/hour, misclassification

Red flags: Misclassified contractors, 409A violations, underfunded pensions, change-of-control severance triggers, key-man dependency.

7. Assets, Insurance & Risk

• Real property: deeds, title insurance, surveys, zoning, Phase I/II environmental
• Personal property: equipment list, liens, UCC filings, security interests
• Insurance: GL, E&O, D&O, property/casualty, cyber, industry-specific
• 5-year claims history; contingent liabilities (warranty, product liability, indemnification)
• DR/BCP plans, crisis protocols

Red flags: Coverage gaps, claims-made vs. occurrence tail exposure, uninsured losses, liens on key assets.

8. Environmental, Health & Safety

• Environmental permits: air, water, waste, hazmat (all jurisdictions)
• Phase I assessments (all owned/leased); Phase II where concerns identified
• Compliance history: violations, NOVs, consent orders, remediation
• Hazardous materials: generation, storage, disposal records, manifests
• OSHA 300/300A logs (5 years), citations, safety programs
• ESG: carbon/sustainability commitments, climate risk disclosures

Red flags: CERCLA/Superfund exposure, ongoing remediation, unresolved NOVs, ESG obligations creating future compliance burdens.

Closing Summary

Conclude every checklist with:

• Critical Findings — material risks requiring deal-team escalation
• Required Consents/Approvals — third-party, regulatory, or lender consents to close
• Recommended Follow-Up — specialist engagement (environmental, benefits, IP)
• Open Items — documents requested but not yet received

Pitfalls

• Tailor scope to transaction type: asset purchases → assumed liabilities and excluded assets; investments → cap table, anti-dilution, governance rights
• Adjust materiality thresholds to deal size and industry
• Flag oral agreements — they create successor liability risk
• For cross-border targets, flag jurisdiction-specific requirements (foreign investment review, local labor law, non-US tax)
• Do not render legal opinions — flag issues for attorney review
• Verify all regulatory citations for applicable jurisdiction and year [VERIFY]