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Due diligence checklist

About the Due diligence checklist

Using a due diligence checklist streamlines your evaluation process, ensuring you don’t miss critical steps. This template helps you optimize your workflow by providing a structured approach to gather necessary information efficiently. You can use it to verify compliance, assess risks, and make informed decisions.

A template like this serves you by offering a comprehensive guide tailored to your specific needs, differentiating it from generic options. It saves time and reduces errors, making your due diligence process more effective and reliable. By using this checklist, you ensure a thorough review, enhancing your confidence in the outcomes.

Key elements of a due diligence checklist

Understanding the key elements of a due diligence checklist helps streamline your documentation process. Here are the essential components to include:

Comprehensive list of required documents: This section ensures you gather all necessary paperwork, such as contracts, financial statements, and licenses. Having all documents organized helps prevent delays and ensures a smooth evaluation process.
Risk assessment section: Identify potential issues by evaluating operational, financial, and market risks. This proactive approach allows you to address concerns before they become significant problems, safeguarding your investments.
Compliance verification: Verify that all legal and regulatory standards are met, including industry-specific requirements. This step is crucial to avoid legal penalties and ensure that the entity operates within the law.
Financial analysis: Analyze the financial health of the entity by reviewing balance sheets, income statements, and cash flow reports. This helps you assess profitability, liquidity, and long-term viability, enabling informed decision-making.
Summary section: Provide a concise overview of findings, highlighting key insights and conclusions. This makes it easier to communicate results to stakeholders and supports transparent decision-making.

When to use a due diligence checklist

Using a due diligence checklist is crucial in several scenarios to enhance your workflow and ensure thorough evaluations. When acquiring a business, you can rely on this template to systematically assess financial health, legal compliance, and operational risks. It’s also essential during mergers and acquisitions, helping you identify potential liabilities and integration challenges.

In real estate transactions, this checklist ensures you verify property details, legal issues, and market conditions. For vendor assessments, this template allows you to evaluate reliability and compliance, ensuring they meet your standards. By using a checklist in these contexts, you streamline processes, reduce errors, and make informed decisions, maximizing the benefits of your due diligence efforts.

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Preview of the template

Due Diligence

Basic Corporate Documents

Collect and review basic corporate documents also for any Subsidiary

Articles of Incorporation, including all amendments.

By-laws, including all amendments.

Minutes of all meetings of directors, committees of directors and shareholders, including copies of any written notices (if given) or waivers thereof and any written consent to action without a meeting.

List of all locations where property owned or leased or where employees are located, indicating in which states the Company is qualified to do business.

List of all countries where Company is doing business, indicating in which countries the Company is qualified to do business.

Samples of common and preferred stock certificates (if any), warrants, options, debentures and any other outstanding securities.

Copies of any voting trust, shareholder or other similar agreement covering any portion of the Company's shares.

Copies of all agreements relating to repurchases, redemptions, exchanges, conversions or similar transactions.

Copies of all agreements containing registration rights or assigning such rights.

Copies of all agreements containing preemptive rights or assigning such rights.

Stock books of the Company.

All quarterly and annual reports and any other communications to the Company's shareholders within the past five years.

All press releases issued by the Company within the past five years.

List of all subsidiaries.

Securities Issuances

Equity Financings: copies of any stock purchase agreements.

Debt Financings: copies of convertible debt agreements.

Stock option or purchase plans and forms of option or purchase agreements which have been or may be used thereunder.

Any other agreements relating to sales of securities by the Company including any private placement memoranda or other offering circulars.

Shareholder Information

Records setting forth all issuances or grants of stock, options and warrants by the Company, listing the names of the issuees or grantees, the amounts issued or granted, the dates of the issuances or grants, the number of shares presently exercisable (if applicable) and the consideration received (or to be received) by the Company in each case.

Lists of all current shareholders, including addresses and numbers of shares owned.

Numerical listing of stock certificates showing certificate number and date, name of shareholder, number of shares, date of Board approval, and permit and tracing transfers.

Lists of all options proposed to be granted, if any, including names and addresses of proposed option holders and number of options to be held by each.

Material Contracts

Bankline of credit agreements, including any amendments, renewal letters, notices, waivers, correspondences, etc.

Other agreements evidencing outstanding loans to or guarantees by the Company, including correspondences.

All outstanding leases for real and personal property.

Material contracts with suppliers or customers. Please indicate which suppliers are the sole source.

Model sales or manufacturing contracts.

Agreements for loans to and any other agreements (including consulting and employment contracts) with officers, directors or employees, whether or not now outstanding.

Schedule of all insurance policies in force covering property of the Company and any other insurance policies such as ''key person'' policies, director indemnification policies or product liability policies.

Partnership or joint venture agreements.

Bonus plans, retirement plans, pension plans, deferred compensation plans, profit sharing and management incentive agreements.

Form of employee confidentiality invention assignment agreement.

Any other material contracts outstanding.

Patent and Trademark

List of all foreign and domestic patents and patent licenses held by the Company.

List of any trademarks, trade names or service marks.

List of any copyrights.

Copies of all material agreements for licensing of Company technology to third parties.

Copies of all material agreements for licensing of technology from third parties.

Description of existing patents and whether additional patents are necessary.

Any correspondence from third parties regarding potential infringement of intellectual property right of others.

List of proprietary processes controlled by the Company.

Name of the law firm which handles patent and trademark matters for the Company and the contact there.

Manufacturing

A breakdown by manufacturing site of the products manufactured, personnel employed, number of shifts and capacity, if any.

List of major suppliers showing total and type of purchases from each supplier during the last and current fiscal years, and indicate which are sole sources.

List of contract manufacturers or assemblers, if any, showing total and type of purchases from each contract manufacturer or assembler during the last and current fiscal years.

Material or outside of ordinary course of business contracts with suppliers, manufacturers, etc., if any.

Description of all toxic chemicals used in production and manner of storage and disposition.

Description of any environmental investigation or claim.

Operations

List of third-party developers showing total and type of project for each developer during the last and current fiscal years, contact names and phone numbers, together with forms of agreements entered into with third-party developers.

List of third-party software duplicators and manual publishers showing total and type of services from each duplicator and publisher during the last and current fiscal years.

Form of agreements relating to the sale or lease of material capital equipment.

List of top 20 accounts payable with contact names and phone numbers.

Products and Services

Copies of all market research or marketing studies conducted in the last three years.

List of the Company's products and services.

List of the Company's competitors.

List of the Company's 20 largest customers or groups in each of the last two fiscal years, indicating the types of products and the amounts of each purchased, and contact name and phone number for each customer.

All material licensing agreements, franchises, and conditional sales contracts to which the Company is a party.

Agreements with distributors, dealers, and sales representatives.

Copies of long-term sales contracts.

Company-financed customer purchase agreements, if any.

Service and support contracts and marketing agreements, if any.

All material agency and advertising contracts to which the Company is a party.

Forms of warranties and guarantees provided to customers.

Copies of all market research or marketing studies.

Copies of sales literature and forms, including price lists, catalogs, purchase orders, etc.

List of top 20 accounts receivable with contact names and phone numbers.

Backlog at end of the most recent fiscal year and most recent fiscal quarter.

Tangible Property

List of real and material personal property owned by the Company.

Documents of title, mortgages, deeds of trust and security agreements pertaining to the properties listed.

All outstanding leases for real and personal property to which the Company is either a lessor or lessee.

List of any security interests in personal property.

Documentation of significant acquisitions or dispositions of assets.

Employees and Executives

Description of any significant labor problems or union activities the Company has experienced including any collective bargaining agreements.

The number of employees broken down by major types of employees and a management organization chart.

Record of employee benefit packages

Detailed resume of directors and top management personnel.

Founders agreements, management employment agreements, indemnification agreements, and ''golden parachute'' agreements, if any.

Schedule of all compensation paid in the most recent fiscal year to officers, directors and key employees showing separately salary, bonuses and non-cash compensation (e.g., use of cars, property, etc.)

Bonus plans, retirement plans, pension plans, deferred compensation plans, profit sharing and management incentive agreements.

Agreements for loans to and any other agreements (including consulting and employment contracts) with officers or directors, whether or not now outstanding.

Description of any transactions between the Company and any insider (i.e., officer, director, or owners of substantial amount of the Company's securities).

Litigation and Audits

All letters which have been sent to auditors in connection with year-end and current interim audits, including ''litigation letters.''

Copies of any auditors' letters to management regarding internal accounting controls.

Descriptions of (and reasons for) any change in accounting methods in the past three years.

Active litigation files, including letters asserting claims, complaints, answers, etc.

Any litigation settlement documents.

Any decrees, orders or judgments of courts or governmental agencies.

Description of any warranty claims which have been made against the Company, any subsidiary, or any partnership or joint venture and the resolution of such claim.

Information regarding any material litigation to which the Company is a party or in which it may become involved.

Environmental

Schedule of Hazardous Materials stored, manufactured or located at any facility of the Company either now or in the past, or that the Company ships or transports (Hazardous Materials means any substance or any material containing a substance that could be considered toxic or hazardous under law, including solvents, petroleum, pesticides, paints, asbestos containing materials, lead based batteries, radioactive materials and PCB containing transformers.)

Schedule of chemicals, toxic substances or air contaminants which are regulated present in any facility of the Company.

Schedule of any incidents involving the release of a potentially hazardous amount of any carcinogen into, or presence of asbestos in, the workplace.

Schedule of all instances in the past in which the Company has corrected unsafe working conditions.

Schedule of all the facilities of the Company that discharge waste into any body of water, stream or any sanitation systems.

Schedule of all permits or approvals obtained from any governmental body responsible for environmental or health regulation.

Schedule of all occasions in which a liquid or solid waste material or any fuel or other Hazardous Material was accidentally or intentionally spilled or released.

Any notices of violation or requests for information that have been received or threatened at any time for alleged failure of any facility to comply with applicable air pollution laws or with any air quality permit.

Others

Copy of any internal or outside studies of the Company or the market for its products (e.g., management consultants).

Summary of all occupational health and safety inquiries (if any).

Summary of all Labor inquiries.

Summary of state, local and foreign income tax status, i.e., have all returns been filed? all taxes been paid? any audits by taxing authorities?

Permits for conduct of business, including licenses, franchises, concessions and distributorship agreements.

Completion

General Comments

Conducted by: (Name and Signature)

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Frequently asked questions

What is the purpose of a due diligence checklist?

A due diligence checklist helps you systematically evaluate important aspects of a business or property, such as financial health, legal compliance, and potential risks. This ensures informed decision-making, reduces errors, and provides a comprehensive understanding of the entity being assessed.

How does a due diligence checklist improve decision-making?

Using this checklist improves decision-making by organizing critical information and highlighting potential risks. It ensures you consider all necessary factors, enabling you to make informed and confident choices, whether you’re acquiring a business or entering a new partnership.

When is a due diligence checklist most beneficial?

The checklist is most beneficial during mergers, acquisitions, and real estate transactions. It helps you verify financials, legal obligations, and operational details, ensuring you have a complete understanding and can mitigate potential issues before finalizing any deals.

Why is risk assessment important in due diligence?

Risk assessment is crucial in due diligence because it identifies potential liabilities and challenges early. By understanding these risks, you can develop strategies to mitigate them, protecting your investments and ensuring smoother transitions in business dealings.

This template, developed by Lumiform employees, serves as a starting point for businesses using the Lumiform platform and is intended as a hypothetical example only. It does not replace professional advice. Companies should consult qualified professionals to assess the suitability and legality of using this template in their specific workplace or jurisdiction. Lumiform is not liable for any errors or omissions in this template or for any actions taken based on its content.