1. Basic Corporate Documents and Documents for Any Subsidiary.
When assessing a target company, it is important to review the relevant corporate documents including the Articles of Incorporation, Bylaws, Minutes of Directors' and Shareholders' meetings; and all documents related to any subsidiaries. This helps to ensure that the target company has been properly incorporated and has been operating within the limits of applicable laws.
2. Securities Issuances.
This includes reviewing any securities (e.g., shares, options, warrants) that have been issued by the target company and confirming that they were properly issued in compliance with applicable laws. Also, it is important to consider whether any restrictions apply to the ownership of such securities or their transferability to a new owner.
3. Shareholder Information.
The due diligence process should include reviewing all available information regarding the current shareholders of the target company and understanding their respective roles in terms of voting power and controlling interests if any. It is also valuable to understand how many shares are held by each shareholder and who controls certain decisions of the company.
4. Material Contracts.
This includes reviewing all contracts that are material to the target company and assessing their terms, conditions, and enforceability. This should include any agreements with customers, vendors, suppliers, lenders, landlords, and other third parties. The review helps ensure the appropriate transfer of such agreements upon a successful completion of the acquisition.
5. Patent and Trademark Matters.
If applicable, it is important to review all intellectual property rights held by or licensed to the target company including patents (utility patents and design patents), trademarks, copyrights, etc., as well as related documents such as license agreements and applications for registration. It is also necessary to identify any open issues related to IP infringement or non-compliance.
This includes a review of the target company's manufacturing processes, materials and equipment used, and related quality procedures. It helps to understand how well the company is able to produce its products or services at scale and whether there are any potential risks associated with such operations.
The due diligence process should include a review of all operational matters including IT systems, supply chain management, customer service management, etc., as these are critical for understanding the cost structure of the target business and potential areas of improvement that may need to be implemented after an acquisition.
8. Sales and Marketing.
It is important to evaluate whether the target company has appropriate marketing strategies in place to reach new customers. This includes understanding the target company's pricing structure, distribution channels, and promotional activities.
9. Tangible Property.
The due diligence process should include a review of all tangible assets owned by the target company including buildings, equipment, and other inventory as well as any related lease agreements. A review of fixed asset records will help to confirm which assets are owned outright and which are leased or otherwise encumbered.
10. Litigation and Audits.
It is important to understand any pending litigation matters relating to the target company including labor disputes, product liability claims, etc., as these may have an impact on the acquisition transaction or the future operations of the business. Additionally, it is important to consider whether there have been any audits of the target company by government agencies or other third parties that could affect the transaction. This due diligence process should also include a review of any open tax disputes and related liabilities.