Investor due diligence checklist

What should investor due diligence establish?

The investor needs to understand what it is acquiring, whether the company owns or can use its key assets, how reliable the financial picture is and which liabilities or restrictions could affect the investment. A complete folder is not the same as a resolved diligence exercise.

Scope depends on the investment instrument, investor, business model and material risks. An early-stage software business may need close attention to founder intellectual-property assignments and customer contracts; a manufacturer may need deeper site, environmental and product-permission work. There is no single statutory checklist that replaces this assessment.

Agree the perimeter before requesting documents

Record the entities, subsidiaries, locations, historical period, cut-off date and proposed transaction. Agree who will examine financial, tax, legal, commercial and technical questions. Note exclusions explicitly so a narrow financial review is not mistaken for assurance on every legal matter.

Set controlled data-room access, confidentiality terms and a question log. Share information in stages and redact unnecessary personal data. Keep a document index showing version, date, owner and the question each document answers.

Corporate ownership and authority

• Incorporation and constitutional documents, current registers and material amendments.
• A fully diluted ownership schedule reconciled to allotments, transfers, option grants and convertible instruments.
• Share certificates or depository records as applicable, payment evidence and filing acknowledgements.
• Board and shareholder decisions, shareholder agreements and rights that affect the proposed investment.
• Outstanding securities, pledges, charges and commitments to issue or transfer ownership.

Financial quality and cash requirements

Reconcile reported revenue to contracts, invoices, collections and the accounting policy used. Separate recurring income from one-off items and related-party transactions. Inspect receivable ageing, disputed balances and post-period collections rather than relying only on the headline sales figure.

Connect historical accounts to current management information and the funding forecast. Explain debt, security, contingent obligations, working-capital needs and assumptions behind runway. Identify cash that is restricted or unavailable to fund ordinary operations.

Tax, contracts, people and operating permissions

• Tax returns, reconciliations, assessments, notices, payment records and unresolved positions.
• Material customer and supplier agreements, termination rights and consent requirements.
• Ownership or licensed use of intellectual property, including founder and contractor assignments.
• Employment and consultant agreements, incentives, unpaid amounts and material disputes.
• Premises rights, regulatory licences and conditions affected by ownership or control changes.
• Data handling, material security incidents, insurance and litigation relevant to the business.

Verify evidence rather than accepting a summary

Use available official records to cross-check the company’s information. MCA provides company master-data and public-document services, but these should be reconciled to internal registers, executed documents and recent events. A filed document can still be incomplete, historical or inconsistent with another record.

For material assets, contracts and liabilities, trace the evidence to the underlying transaction. Record missing information as unresolved, rather than interpreting silence as confirmation that no liability exists.

Example: a cap table includes an undocumented option promise

Suppose the founder’s spreadsheet includes an employee option allocation but the data room contains no approved plan or grant record. Ask whether the entry represents an issued grant, a contractual promise or a future proposal. Reconcile dilution and obtain the relevant evidence before using the spreadsheet in the investment documents.

Depending on the facts, the response might be corrective documentation, revised economics, disclosure or a closing condition. Do not backdate documents or describe an uncompleted step as historically complete.

Convert findings into a closing and follow-up list

For each finding, record the evidence, affected amount or right, responsible party and proposed resolution. Distinguish issues that must be resolved before closing from matters addressed through disclosure, agreed protections, pricing or a dated post-closing action.

Refresh material information before funds move and retain proof that closing conditions were satisfied. Diligence reduces uncertainty; it does not guarantee business performance or eliminate every hidden liability. The agreed scope and limitations should travel with the final report.