Due Diligence Checklist - Corporate Transaction Document

You are tasked with preparing a comprehensive due diligence checklist for a corporate transaction. This document serves as a systematic framework for investigating and evaluating a target company's legal, financial, and operational status prior to completing a merger, acquisition, investment, or other significant corporate transaction.

Document Structure and Approach

Begin by establishing the foundational context of the due diligence engagement. Clearly identify the transaction type (merger, acquisition, asset purchase, investment, joint venture, or other corporate restructuring), the parties involved, the proposed transaction timeline, and any specific areas of concern or focus identified by the client. Define the scope boundaries explicitly, noting any jurisdictions, business units, or time periods that fall within or outside the review parameters. Address the purpose and intended use of this checklist, whether for internal decision-making, presentation to a board of directors, disclosure to investors, or negotiation leverage. Consider the materiality thresholds appropriate for this particular transaction size and industry context.

Corporate Structure and Organizational Documents

Develop a comprehensive inventory of the target company's corporate existence and governance framework. Your checklist should capture all formation documents including articles or certificate of incorporation, bylaws or operating agreements, and all amendments thereto. Include verification of good standing certificates from the state of incorporation and all foreign qualification jurisdictions where the company conducts business. Document the complete ownership structure, including capitalization tables, stock ledgers, shareholder agreements, voting trusts, proxies, and any restrictions on transfer. Identify all subsidiaries, affiliates, joint ventures, and variable interest entities, along with their respective organizational documents and ownership percentages. Examine board and shareholder meeting minutes for at least the past three years to identify material decisions, conflicts of interest, or governance irregularities. Your analysis should verify proper corporate formalities, authority for the proposed transaction, and any potential piercing-the-corporate-veil concerns.

Financial Records and Tax Compliance

Compile a thorough financial due diligence framework covering both historical performance and current financial condition. Request audited financial statements for the past three to five fiscal years, including balance sheets, income statements, cash flow statements, and notes to financial statements, along with any management letters from auditors. Include interim unaudited financial statements for the current fiscal period and comparable prior periods. Identify all tax returns (federal, state, local, and foreign) for applicable periods, along with documentation of any audits, disputes, settlements, or ongoing examinations by tax authorities. Your checklist should address accounts receivable aging, inventory valuation methods, debt schedules with covenant compliance status, off-balance-sheet liabilities, and contingent obligations. Examine revenue recognition policies, related party transactions, and any restatements or accounting changes that may indicate financial reporting concerns or require adjustment to valuation models.

Material Contracts and Commercial Agreements

Create a systematic review framework for all agreements that are material to the business operations or that may be affected by a change of control. Prioritize customer and supplier contracts that represent significant revenue or expense concentrations, particularly those with termination rights, change-of-control provisions, or consent requirements. Include distribution agreements, sales representative arrangements, franchise agreements, and partnership or joint venture contracts. Document all real property leases (including options, renewal rights, and assignment restrictions) and equipment leases or financing arrangements. Examine loan agreements, credit facilities, security agreements, guarantees, and other debt instruments for covenant compliance, acceleration clauses, and consent requirements. Your analysis should identify contracts that deviate from standard terms, contain unusual indemnification or liability provisions, impose post-termination obligations, or create potential successor liability issues. Flag any agreements that lack written documentation or rely on oral understandings.

Intellectual Property Assets and Technology

Develop a comprehensive intellectual property audit covering all registered and unregistered rights that provide competitive advantage or operational necessity. Document all patents (issued and pending), trademarks and service marks (registered and common law), copyrights (registered and unregistered), domain names, trade secrets, and proprietary know-how. Include all licenses where the company is either licensor or licensee, noting exclusivity, territory, field of use restrictions, royalty obligations, and termination provisions. Verify ownership through assignment agreements from founders, employees, contractors, and any third parties who contributed to IP development. Examine invention assignment agreements, confidentiality agreements, and policies governing employee-created intellectual property. Your checklist should address freedom-to-operate concerns, potential infringement issues, ongoing or threatened IP disputes, and the adequacy of protective measures for trade secrets and confidential information. Consider technology dependencies, including software licenses (both proprietary and open source), cloud services agreements, and data processing arrangements that may require consent or renegotiation.

Litigation, Disputes, and Regulatory Compliance

Establish a comprehensive framework for identifying legal risks, pending proceedings, and compliance status across all applicable regulatory regimes. Document all pending or threatened litigation, arbitration, mediation, or other dispute resolution proceedings, including demand letters, cease-and-desist notices, or informal complaints. Include administrative proceedings, regulatory investigations, government inquiries, and any matters involving current or former employees, customers, suppliers, or competitors. Examine settlement agreements, consent decrees, or compliance obligations arising from past disputes. Your checklist should cover all material licenses, permits, approvals, and authorizations required for business operations, noting expiration dates, renewal requirements, and any violations or deficiencies. Address industry-specific regulatory compliance including securities laws (if applicable), antitrust and competition laws, consumer protection regulations, advertising and marketing compliance, data privacy and security requirements (GDPR, CCPA, HIPAA, or other applicable frameworks), export controls, and anti-corruption laws (FCPA, UK Bribery Act). Identify any internal investigations, whistleblower complaints, or ethics violations that may indicate systemic compliance weaknesses.

Employment, Labor Relations, and Employee Benefits

Compile a thorough review of the workforce structure, compensation arrangements, and all employee-related obligations. Request current employee census data including names, titles, compensation levels, hire dates, employment status (full-time, part-time, contractor), and location. Examine all employment agreements, offer letters, severance agreements, non-competition and non-solicitation agreements, and confidentiality agreements, particularly for key employees and executives. Document all employee handbooks, policies, and procedures, noting any deviations from stated policies or inconsistent application. Include all compensation and benefit plans such as retirement plans (401(k), pension, or other qualified plans with recent Form 5500 filings and plan documents), health and welfare plans, equity compensation plans (stock options, restricted stock, phantom equity), bonus and incentive programs, and commission structures. Your analysis should address labor relations matters including union contracts, collective bargaining agreements, labor disputes, unfair labor practice charges, and union organizing activities. Examine compliance with wage and hour laws, classification of workers as employees versus independent contractors, accommodation of disabilities, leave policies (FMLA, state leave laws), and any ongoing or past employment-related claims including discrimination, harassment, retaliation, or wrongful termination allegations.

Assets, Liabilities, Insurance, and Risk Management

Develop a comprehensive asset and liability inventory with particular attention to items that may require special handling in the transaction structure. Document all owned real property with deeds, title insurance policies, surveys, zoning compliance verification, and environmental assessments. Include all tangible personal property such as equipment, machinery, vehicles, furniture, and inventory, noting any items subject to liens, security interests, or retention of title arrangements. Identify all material intangible assets beyond intellectual property, including customer lists, databases, goodwill, and going concern value. Examine all outstanding debt obligations, contingent liabilities, warranty obligations, product liability exposures, and indemnification commitments. Your checklist should include a complete insurance portfolio review covering general liability, professional liability, directors and officers liability, property and casualty, business interruption, cyber liability, and any industry-specific coverage. Verify adequate coverage limits, claims history for the past five years, any coverage gaps or exclusions that create risk, and whether policies are occurrence-based or claims-made. Address risk management practices including disaster recovery plans, business continuity procedures, and crisis management protocols.

Environmental, Health, Safety, and Sustainability Matters

Create a framework for assessing environmental compliance and potential liabilities that may affect transaction value or structure. Document all environmental permits, licenses, and approvals including air emissions, water discharge, waste management, and hazardous materials handling authorizations. Include Phase I environmental site assessments for all owned or leased real property, with Phase II assessments for any properties with identified concerns. Examine compliance with federal environmental laws (Clean Air Act, Clean Water Act, RCRA, CERCLA, TSCA) and corresponding state and local regulations. Your analysis should address any environmental violations, notices of violation, consent orders, remediation obligations, or ongoing monitoring requirements. Identify the generation, storage, treatment, transportation, and disposal of hazardous substances or wastes, including manifests and disposal site information. Review workplace health and safety compliance including OSHA recordkeeping, injury and illness logs, safety programs, and any citations or violations. Consider emerging environmental, social, and governance (ESG) factors including carbon footprint, sustainability initiatives, climate-related risks, and any public commitments or reporting obligations that may create future compliance requirements or reputational concerns.

Final Deliverable Requirements

Upon completing your research and analysis across all sections, synthesize your findings into a well-organized due diligence checklist document. Structure the checklist with clear section headings, specific document requests, verification procedures, and space for noting document receipt status and any identified issues or red flags. Include a summary section highlighting critical findings, material risks, required consents or approvals, and recommended follow-up investigations. Ensure the checklist is tailored to the specific transaction context, industry considerations, and client priorities while maintaining comprehensiveness across all standard due diligence categories. The final document should serve as both a roadmap for the due diligence process and a record of completed investigations.