Due Diligence Checklist

Due diligence is the period of investigation that precedes a merger, acquisition, or investment, and it exists to help you assess a target company's profitability, risks, and strategic fit before you commit to a decision. This checklist supports that work by laying out the records to gather and the questions to answer, from basic corporate documents such as the Certificate of Incorporation and Articles of Association through securities issuances, material contracts, intellectual property, manufacturing and operations, employees and management, litigation, and environmental protection. Skipping or skimming these areas leaves you negotiating and valuing the company without a full picture of what you are buying or backing.

You begin by recording the administrative details: the date conducted, who prepared it, the location, and any instructions. From there you walk through each area in turn. Under Basic Corporate Documents and Securities Issuances you collect constitutional documents, minutes and written consents, securities records, stock ledgers, and records of all issuances or grants of stock, options, and warrants. Next come shareholder information, material contracts, patents and trademarks, and copyrights. Manufacturing, operations, products and services, and material property follow, then employees and management, litigation and audits, and environmental protection. You close with the miscellaneous items. Each item is assessed against the answer scale of No Issues, Warning Signs, For Review, or Not Applicable, which gives you a consistent way to flag points that need a closer look.

Bring together the documents themselves rather than summaries of them: the Certificate of Incorporation and Articles of Association with all amendments, minutes of director, board committee, and shareholder meetings together with written consents and actions taken without a meeting, stock ledgers and specimens of securities, and the contracts you need. Assemble a list of all subsidiaries, and details of issuances or grants of stock, options, and warrants showing names of recipients, amounts, dates, currently exercisable shares, and the consideration received. Gather current shareholders with their addresses and holdings, and proposed option grants with names and addresses, so that capitalization can be verified rather than inferred. On the contract side, collect bank credit agreements with amendments and correspondence, other agreements evidencing loans or guarantees, all outstanding leases for real and personal property, and material contracts with suppliers and customers with sole sources indicated. Intellectual property requires lists of patents and patent licences, trademarks, trade names or service marks, copyrights, and any correspondence about potential infringement. Operationally, you want the manufacturing breakdown by facility, major suppliers and contract manufacturers with purchase amounts by fiscal year, toxic chemicals used and how they are stored and disposed of, environmental investigations or damage incidents, and the top 20 accounts with contact details.

Not every company will have every item. The checklist uses the answer Not Applicable for the cases where a category or request does not apply, which keeps the record honest about what was reviewed and what was absent. Where an item does not apply, note it as such and keep the rest of the record consistent, so the final set of answers tells a clear story about what was gathered, what was found, and what was deliberately excluded.

The Intellectual Property section documents patents and patent licences, trademarks, trade names, service marks, and copyrights, and asks you to describe existing patents and whether additional patents are needed. It also asks for any correspondence from third parties regarding potential infringement of others' intellectual property rights, agreements licensing the company's technology to third parties, agreements licensing technology from third parties, and a list of proprietary processes controlled by the company. Finally, it captures the law firm handling patent and trademark matters together with the contact person there, so that follow-up questions have a clear route.

The commercial picture is built from several parts: material contracts with customers and suppliers, with sole sources indicated; loan and other agreements with officers, directors, or employees; a schedule of current insurance policies, including key person, directors and officers liability, or product liability cover; and any partnership or joint venture agreements. On the people side, you collect bonus, retirement, and pension plans, salary reduction plans, profit sharing and management incentive agreements, and the form of confidentiality and assignment of employee inventions agreement. The Products and Services material asks for market research or marketing studies conducted in the last three years, a list of the company's products and services, a list of competitors, and the 20 largest customers or groups in each of the last two fiscal years with quantities purchased and contact details.

The checklist asks for a description of any toxic chemicals used in production and the method of storage and disposal, and a description of any environmental investigations or damage incidents. These sit under Environmental Protection, alongside manufacturing details such as the breakdown of products manufactured, personnel employed, number of shifts, and capacity by manufacturing facility. Taken together they help you understand the operational footprint and the environmental matters that have already arisen.

The records requested around employees and management include loan and other agreements with officers, directors, or employees, whether or not still outstanding; bonus, retirement, and pension plans; salary reduction plans; profit sharing and management incentive agreements; and the form of confidentiality and assignment of employee inventions agreement. You also gather a list of all locations where property or leased real estate is located or where employees are employed, indicating the states or countries where the company is qualified to do business.