Legal due diligence checklist

What legal due diligence answers

Legal diligence examines rights, obligations and restrictions that may affect an investment or acquisition. Its output should explain the evidence, the issue and the decision required. It is distinct from verifying earnings, pricing the business or certifying technical safety.

Define the target entities, assets, jurisdictions, historical period and transaction structure first. An asset purchase needs attention to what can be transferred; a share purchase also requires assessment of obligations remaining within the target. Neither structure makes every risk disappear.

Corporate existence, ownership and authority

• Constitutional documents, incorporation records and current entity status.
• Ownership registers reconciled to allotments, transfers and outstanding rights.
• Shareholder agreements, reserved matters, pre-emption and consent provisions.
• Board and shareholder authority for material historic and proposed decisions.
• Security interests, financing covenants and guarantees affecting the transaction.

Read the whole material contract

Collect signed agreements with schedules, amendments, renewals and side letters. Identify the correct contracting entity, term, payment commitments, termination rights, exclusivity, liability provisions and dispute process. An unsigned template does not prove the terms on which a customer actually contracted.

Check assignment and change-of-control clauses against the proposed structure. Record which consents are required, who will obtain them and whether they are closing conditions. Do not assume that silence in a summary means the underlying contract contains no restriction.

Trace intellectual property and premises rights

For important software, brands, designs and other intellectual property, trace creation, assignment and licensing to the target. Include founder, employee and contractor arrangements and restrictions in third-party or open-source licences. A registration certificate and the contractual chain of ownership answer different questions.

For premises, examine title or lease evidence, permitted use, term, renewal, security and transfer conditions. Include relevant building and operating permissions. Property searches and technical site assessment may need specialist scope beyond a corporate document review.

People, permissions and disputes

• Employment and consultant agreements, incentive commitments and material exit disputes.
• Applicable workplace policies and evidence of required processes.
• Licences and approvals identifying the operator, premises, activity and validity.
• Notices, inspection findings, litigation, arbitration and threatened claims.
• Material data-processing contracts, confidentiality obligations and incident records.
• Insurance terms, exclusions and notified claims relevant to identified exposures.

Handle missing evidence and confidentiality

Maintain a request log showing received, incomplete, not applicable and unresolved items. Ask for the reason and supporting facts when management marks a request not applicable. Use available official records to cross-check the supplied documents, while recognising that public records may not contain recent or private arrangements.

Restrict data-room access to the agreed team, redact unnecessary personal details and obtain legal advice before sharing privileged material. Preserve an identifiable final document set and the date to which the review applies.

Example: a key customer can terminate after a control change

Suppose a major customer agreement permits termination following a change of control. First read the actual definition, notice requirements and exceptions against the proposed acquisition. Quantify the commercial dependence with the financial team and seek the required consent or other agreed resolution.

The result may be a closing condition, a revised structure or a commercial decision to accept the exposure. A broad seller warranty does not itself prevent the customer from exercising a contractual right.

Make the report actionable

For each material issue, identify the document, legal question, practical consequence and proposed action. Separate confirmed findings from matters that could not be verified. Avoid presenting a missing document as proof of compliance or non-compliance without further evidence.

Carry agreed actions into the transaction documents and closing checklist. Assign post-closing owners and dates, and refresh material facts before closing. The report should state its scope, assumptions, exclusions and reliance limits.