Merger and Acquisitions Series - Due Diligence Questions For the Legal

By Keith McAslan Icon


The following is a list of questions as part of the overall company due diligence focusing on gathering documentation for the legal. The outcome of this investigation is to validate the accuracy of the records as part of the overall company due diligence process.

Due Diligence Definition:

Due Diligence is the verification process of information and its associated documentation to ensure a reasonable individual "that they get what they are paying for". When buying, selling or forming a joint venture it is very important that the books and records are verified and tested to ensure the historical financial results are validated. If your company has a team of professionals who have experience in multiple transactions and a detailed checklist to follow that is probably an exception to the rule, most companies due these type of transaction infrequently. Therefore, it is recommended that due diligence be a coordinated effort with members of the company and an outside firm who has experience with the due diligence process.

The following are examples of the information to be assembled from key members of the management staff as part of the due diligence process.


a. General and Contractual Matters

  1. Legal, organizational and ownership structure of the business.
  2. Summary of directors, officers and key employees of the Company, including organizational charts.
  3. Summary of key historical developments of the Company (i.e. incorporation, change of ownership, acquisitions (including deal terms), restructurings, etc.). Include articles of incorporation and certificates of good standing in states where company is incorporated and where it does business.
  4. List of states where the Company is qualified to do business and copies of good standing certificates for those states.
  5. Copies of bylaws and other legal organizational documents of the Company.
  6. Complete capitalization tables, on both a fully diluted and "as is now" basis.
  7. Copies of minutes (or written consents) of executive (and committees) meetings during the last two years.
  8. Sales representative commission agreements.
  9. License agreements under which the Company pays or may pay royalties or other fees.
  10. License agreements under which the Company receives or may receive royalties or other fees.
  11. Summary of royalties paid/received over the last three years.
  12. Any material joint venture or partnership agreement to which the Company is a party.
  13. Significant contracts with vendors, including all operating and capital leases.
  14. Significant contracts with customers and service providers, including any long-term contracts and future contracts.
  15. Confidentiality or secrecy agreements to which the Company is a party.
  16. Contracts and/or arrangements with accounting, legal and/or public relations firms, IT consulting or other business consultants for the provision of services to the Company.
  17. Schedule of professional fees paid for fiscal for the last five fiscal years.
  18. Copies of any acquisition or sale agreements. Description of accounting treatment for the transaction (purchase accounting or pooling, accounting adjustments, etc.).
  19. Schedule of significant related party transactions for the last five years.
  20. Listing of key advisors: legal, accounting, consulting, banking, and other.
  21. Please provide all direct and outsourced sales rep agreements.
  22. A list of all corporations, limited liability corporations, partnerships, associations, joint ventures and other business entities in which the Company owns, directly or indirectly, an equity interest or any shares of capital stock. Such list shall include the nature of the interest, number of shares (if applicable), the percentage ownership of each Company in each such entity, the jurisdiction where each such entity was formed, each jurisdiction in which such entity is qualified to do business and the business presently conducted and, if different, proposed to be conducted by each entity.
  23. For each entity listed above, all organizational documents (Articles of Incorporation, Bylaws, LLC Certificates of Formation and Operating Agreements, Partnership Agreements, etc.), as amended to date.
  24. Copies of government contracts and subcontracts.
  25. Any waiver or agreement of the Company canceling claims or rights of substantial value other than in the ordinary course of business, or any document relating to material write-downs or write-offs of notes or accounts receivables other than in the ordinary course of business.
  26. Any debt agreements to which the Company is a party, such as loan agreements, bank lines of credit, promissory notes, letters of credit, performance guarantees or bonds, mortgages, significant property or equipment leases, etc., and all guarantees by the Company. Any interest rate cap, hurdle or swap or other hedging mechanism relating to the foregoing.
  27. All summaries of compliance with the instruments described above, and any communications regarding defaults, potential defaults or waivers of defaults.
  28. Marketing agreements, including sales agent or representative, dealer and distributor agreements, consignment and pricing agreements.
  29. Management and service agreements.
  30. Agreements between the Company and any officer or management executive or consultant of the Company, their subsidiaries or any affiliates.
  31. Any other material contracts of the Company
  32. Description of litigation by or against the Company for the last five years, including employee claims and product liability cases. Describe parties, subject matter and resolution or current status.
  33. Details of expected future compliance costs per SEC and other relevant disclosure requirements.
  34. Disclosure documents used in private placements of securities, industrial development bond financings, or institutional or bank loan applications. All agreements, memoranda, registration statements, prospectus, or offering circulars pertaining to the acquisition, sale or attempted sale of securities of the Company or any subsidiaries.

b. Environmental Documents

  1. All environmental studies.
  2. All environmental permits, licenses, or other governmental approvals.
  3. Pending environmental permit applications or applications for other environmental governmental organizations.
  4. Agreements (other than financing documents) with provisions relating to environmental conditions or liabilities. These would include warranties, representations, indemnities, escrow agreements, etc.
  5. Insurance policies that cover liability for environmental impairment.
  6. Documents relating to the existence, monitoring or insurance of underground storage tanks.
  7. Known or suspected environmental problems associated with neighboring or related property.
  8. All enforcement-related documents or agreements, pending or closed, such as consent decrees, administrative or other orders, notices of violation, and agency correspondence alleging non-compliance or relating to clean up of sites alleged to contain hazardous materials; Governmental requests for environmental or health and safety studies and the responses thereto by the Company, any subsidiary or any partnership or joint venture involving the Company or its subsidiaries.

c. Litigation and Government Regulation

  1. Provide summaries, including parties, nature of proceedings, date of commencement, current status, relief sought and estimated actual costs, insurance coverage, if any, and any legal opinions rendered concerning any active, pending or threatened actions involving over $20,000 including the following:
    • Civil suits by private persons or entities;
    • Suits by governmental bodies;
    • Criminal actions involving the Company, and subsidiary or any of their significant employees;
    • Tax claims (federal, state, and local);
    • Administrative actions; and
    • Investigations.
  2. Copies of all material correspondence during the past five years with: Department of Justice; Federal Trade Commission; Equal Opportunity Employment Commission; Environmental Protection Agency; Internal Revenue Service; Occupational Safety and Health Administration; Department of Labor; Department of Commerce, including the Patent and Trademark Office; and any other regulatory agency (city, state, federal, foreign, and domestic) to which the Company or any subsidiary is subject
    • Copies of all orders of courts, administrative agencies or other tribunals or of settlement agreements imposing continuing obligations or restriction on the Company or any subsidiary of any nature.
    • Any permits, licenses, etc., issued by any governmental body; summary of all permits, licenses, etc., which Company or any subsidiary believes it may need but does not have. Also include any reports, notices or correspondence relating to any joint venture or partnership and any suspended or revoked governmental permits or licenses.
    • Letters of counsel in reply to auditor's letters for the past five years.
    • A schedule setting forth all governmental (local, state, federal and foreign) agencies to which the Company or any subsidiary reports, including all communications to and other filings with these governmental agencies during the last five years.
    • A schedule of all questionable or improper payments.
    • Documents showing any certification of compliance with, or any deficiency with respect to, regulatory standards (for example, environmental protection standards) by any of the Company's facilities.
    • All communications to and other filings with local, state, federal and foreign governmental agencies during the last five years in jurisdictions where assets are located or operations are conducted by the Company or any of its subsidiaries. Any reports, notices or correspondence relating to any purported violation or infringement by the Company or any of its subsidiaries (or by any partnership or joint venture involving the Company or any subsidiary) and any suspended or revoked governmental permits or licenses and copies of all other material correspondence with governmental agencies.
    • Correspondence of the Company or its subsidiaries with the following: Federal: SEC FDA FTC Department of Labor (OSHA & EEOC) Department of Health, Education & Welfare State: State Securities Commission State Department of Labor State Department of Revenue State Department of Health any other state or local, federal, or foreign governmental agencies of significance to the Company's business or operations.
    • For the last five years, complaints, pleadings, briefs and other documents pertaining to any pending or threatened litigation, arbitration or investigation before regulatory or administrative bodies which is material to the Company or a subsidiary, or pertaining to pending or threatened, civil or criminal litigation in which the Company or a subsidiary, or its respective officers, directors, employees or agents, as a result of such status or as a result of action taken in such position, are defendants. Summary of current provisions in the Company's financial statements made for estimated liabilities arising out of these matters.
    • Information with respect to any existing consent decrees or settlement agreements, which materially affect the conduct of the Company's or any of its subsidiaries' businesses.
    • Schedule of fines and penalties incurred by the Company or any of its subsidiaries arising out of the operation of its facilities or equipment or the sale of its products.

d. Pension and Labor Information

  1. Each employee benefit plan, including the following:
    • Defined benefit pension plans as defined in ERISA 3(35);
    • Defined contribution pension plans as defined in ERISA 3(34);
    • Welfare benefit plans as defined in ERISA 3(1);
    • Multi-employer plans as defined in ERISA 3(37);
    • Plans maintained pursuant to an agreement with a labor union;
    • Each life insurance program;
    • Each severance pay plan;
    • Each employee plan or policy such as vacation policy (accrued and paid at termination), cafeteria policy, sabbaticals, unwritten perks, etc.;
    • Executive compensation: (1) Executive employment contracts (2) Deferred compensation program (3) ISOP or nonqualified stock plans (4) Supplemental or excess plan (5) Excess medical reimbursement plan (6) Other plans;
    • Employee leasing arrangements or contracts; and
    • Agreements with independent contractors.
  2. For each plan listed provide copies of all relevant documents.
  3. Describe in detail:
    • Investigations, compliance proceedings or audits being conducted by an agency of the government;
    • Pending or threatened litigation;
    • Reductions in or restrictions on benefits;
    • Facility closings or layoffs or cessation of a line of business within the last five years;
    • Sales of subsidiaries or divisions;
    • Fiduciary breaches and/or prohibited transactions;
    • Contributions not made;
    • Recent changes in actuary, accountant, insurance carrier;
    • Non-compete and confidentiality/secrecy agreements;
    • Collective bargaining agreements; and
    • "No Match" letters regarding Employee Social Security Numbers.
  4. Provide copy of employee handbooks, rules and regulations.
  5. Loans and guarantees to or from stockholders, directors, officers or employees of the Company and its subsidiaries. All agreements documenting transactions between the Company and its officers, directors or stockholders.
  6. A schedule showing family relations (including relations by marriage) among officers and directors of the Company.

e. Intellectual Property

  1. A schedule of, and evidence of all U.S. and foreign intellectual property owned by Company and any of its subsidiaries, including all patents, patent applications, registered and unregistered copyrights, trademarks, service marks, trade dress, trade names, trade secrets, data bases, know-how, show-how or other proprietary information. For all entries, include expiration dates (if applicable), jurisdiction of registration or filing for registration and status (including the payment of any maintenance fees).
  2. A schedule of each invention disclosure for which patent applications may be contemplated but have not been filed, showing subject matter, inventor, date of first use, sale or disclosure, and status.
  3. All agreements for rights under, and each maintenance agreement for, third party intellectual property licensed to the Company or the Company's intellectual property licensed to any third party.
  4. A description of any pending or threatened litigation or other proceeding (including, but not limited to, proceedings in federal, state and foreign courts or agencies such as patent, copyright or trademark offices), or any facts that may reasonably provide the basis for a claim that any person is infringing any intellectual property used by the Company in its present or contemplated business activities, whether such intellectual property is owned by Company or a third party, including, to the extent applicable, a description of all pending or imminent claims for defamation, slander, libel, violation of privacy, copyright infringement, patent infringement, trademark infringement or claims based on other theories relating to the information the Company publishes or gathers on its Internet website or otherwise. For each proceeding identified, provide facts detailing the nature, potential exposure and status of each. Similar information as to any claim that the Company is infringing the intellectual property rights of some other party.
  5. A description of all infringement, known to the Company, of the Company's intellectual property, showing the date of the Company's awareness, potential damages and status of each and a description of any facts that may reasonably provide the basis for a claim for violation of any intellectual property right.
  6. All non-competition and confidentiality agreements and consulting or development agreements under which the Company has contracted for products or services, and out of such products or services intellectual property rights pertaining in whole or in part to the Company's present or contemplated business activities may arise or have arisen.
  7. All documents pertaining to the Company's presence on the Internet, including a schedule of all universal resource locators ("URLs") owned by or licensed to Company, all server and hosting agreements, evidence of Internet domain name registration (in the U.S. and elsewhere), schedule of all Internet addresses for the Company's co-branded sites with distribution partners (in the US and elsewhere), agreements evidencing all "affiliate" relationships between the Company's website(s) and third party websites, Internet related "traffic reports" and other documentation which may provide information as to the number of visitors accessing the Company's URLs, and the Company's privacy policy with respect to information compiled by the Company from visitors to its URLs.

f. Properties and Equipment

  1. List of addresses and legal descriptions of properties currently owned or leased by the Company and related documentation.
  2. Copies of all deeds evidencing ownership of the properties owned by the Company.
  3. For each property owned or leased by the Company or a subsidiary, a copy of the latest owner or leasehold title insurance policy issued, as applicable (together with copies of all documents mentioned in policies, in the Schedule of Exceptions or otherwise), and the most recent survey covering such properties.
  4. Copies of all leases for use of the real property owned or leased by the Company.
  5. Copies of all mortgages encumbering the properties owned by the Company.
  6. All equipment leases for a period in excess of ten (10) years or which require payments in excess of $25,000 dollars per year.
  7. Any recent appraisals of the Company's properties, facilities, M&E or other assets.


The due diligence process is very financially oriented, but professionals in legal, tax, human resources, insurance & risk, sales and operations are typically involved in the process and responsible for difference areas of the validation process. Do not take the process lightly and do not assume the information being provided is correct without a through vetting and analysis to validate the accuracy.

It takes an experienced, cross functional team to perform due diligence, remember this is also part of the negotiation process as the final purchase price usually is adjusted based on the information from due diligence. Be sure to ask the right questions, then validate!

Keith McAslan is a Partner with CxO To Go a national professional services company headquartered in Denver, Colorado that provides on-demand C-Level expertise and best practices to client companies on a part time, flexible, and affordable basis. Keith is sought after to provide advisory services as the Trusted Advisor to Owners and CEO's. By utilizing his extensive experience as a successful financial and operational C-level executive, Keith brings a results driven leadership style to complex situations.

McAslan's expertise includes: financial advisory; management consulting; part time, interim & virtual CFO, COO and CEO; debt and equity financing; turnaround management; acquisition and divestiture advisory. Most recently Keith, was instrumental in the successful sale of Western Forge to Ideal Industries. As the interim CFO with finance and private investment transaction experience, he guided the management team through the complex sale and due diligence process completing the sale from prospective buyer presentation to close within 60 days. Please contact Keith at 303-520-2493,, or This email address is being protected from spambots. You need JavaScript enabled to view it. for your free 2 hour strategy call to discuss your business needs.

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