Due Diligence in Buying a Business

What goes into examining a target business? Here is an outline of potentially relevant topics.

NOTE: This is merely an outline to provide an example of the topics that will drive a due diligence undertaking. This list does not substitute for legal advice. Only your lawyer, familiar with your potential transaction, can provide appropriate counsel specific to your unique circumstances. Each business transaction is unique.

1. Organization (Minute book, ledger, authorities, registrations, capitalization etc.)
   • Shareholders and Stock-related agreements (Stock purchase business acquisitions will require significant investigation into corporate documentation, more so than asset-based business purchases.)
   • Directors and Officers (Including contact information and compensation, agreements with, etc.)
   • Employees (Details re benefits, records, accumulated time off, etc.)
   • Property (Real and personal – all records, title, former premises, security interests, etc.)
   • Intellectual Property (Patent, trademarks, trade secrets, copyright, licenses, protection procedures, internal studies and audits, etc.)
   • Inventory and Accounts Receivable (Thorough list and description including aged inventory, AR, AP and aging reports of same, etc.)
   • Customers and Suppliers (Complete description of all arrangements especially significant relationships accounting for more than 5% to 10% of business activity, history of relationships and negotiations, special arrangements, disputes, etc.)
   • Financial (Statements from past five fiscal years, CPA contact information and follow-up, reports and audits, write-down history, material changes in accounting policies or procedures, most recent expenditure budget, contingent liabilities, dividend policy, bank statements etc. etc. etc.)
   • Tax (Last five years preferable, including other IRS filings and correspondence, Tax Status Certificate or similar, etc.)
   • Securities (Private placements, SEC filings and correspondence, disclosure questionnaires, etc.)
   • Environmental (Description of hazardous materials used or located on property owned or leased, environmental studies or reports, EPA or state and local filings and correspondence, etc.)
   • Antitrust (Market or industry studies prepared, trade association memberships, etc.)
   • Contracts (Analysis of standard form agreements and warranties, deeds, mortgages, leases for real and personal property, employment agreements, former employee arrangements including deferred comp and nondisclosures, collective bargaining, management and consulting agreements, marketing and co-branding agreements, options and first rights, joint ventures, vendors and customers, IP agreements, restrictive agreements, indemnifications, agreements with competitors, M&A activity in last five years, settlements, LOI’s, term sheets, third party consent requirements, etc. etc. etc.)
   • Insurance (List all policies with specificity including premiums and exclusions, descriptions of all claims made last five years, correspondence, etc.)
   • Litigation (List each pending or threatened claim, lawsuit, arbitration, investigation, etc. including history of judgments or settlements, etc.)
   • Licenses (List all federal, state, local and foreign governmental licensed, permits, approvals, expiration dates including transferability and termination dates, etc.)
   • Other Regulatory Authorities (Filings and correspondence with all levels of government and regulatory authorities last five years.)
   • General Business (Business and marketing plans, promotional literature, press releases, competitive intelligence, etc.)
   • Other Documents and Information (Other documents and information that should be reviewed and considered to evaluate the financial condition of the company.)

Call today at 503-567-1234 or e-mail us to discuss your business-related issues.