Due Diligence Checklist

---
name: due-diligence-checklist
language: en
description: Drafts due diligence checklists for U.S. corporate transactions (M&A, asset purchases, investments, JVs, restructurings). Covers corporate structure, financials, tax, contracts, IP, litigation, employment, benefits, insurance, and environmental compliance. Surfaces change-of-control triggers, consent requirements, and red flags. Use when preparing for deal closing, board presentations, or investor disclosure.
---

# Due Diligence Checklist

Generates a structured, transaction-ready due diligence checklist for U.S. M&A and corporate transactions.

## Quick Start

Collect before drafting:

1. **Transaction type** — merger, acquisition, asset purchase, investment, JV, or restructuring
2. **Target** — company name, incorporation/operation jurisdictions
3. **Timeline** — anticipated closing date
4. **Scope** — business units, subsidiaries, time periods, materiality thresholds
5. **Priorities** — known concerns, industry-specific risks, regulatory focus

Output each line item as: **Item** | **Documents Requested** | **Received (Y/N/Partial)** | **Issues/Notes**

## Checklist Sections

### 1. Corporate Structure & Governance

- Formation docs (articles, bylaws, amendments), good standing certificates
- Cap table, stock ledger, shareholder agreements, voting trusts, transfer restrictions
- Subsidiary org chart with formation docs and ownership % for all subs/affiliates/JVs/VIEs
- Board and shareholder minutes (last 3 years); resolutions authorizing the transaction

**Red flags:** Governance irregularities, corporate formality gaps, piercing-the-veil risk, conflicted approvals.

### 2. Financial Records & Tax

- Audited financials (3–5 years): balance sheets, P&L, cash flow, footnotes, management letters
- Interim financials (current period + prior-year comparable)
- Tax returns (federal, state, local, foreign); audits, assessments, open examinations
- AR/AP aging, debt schedule with covenant compliance, off-balance-sheet obligations
- Revenue recognition policies, related-party transactions, restatements

**Red flags:** Covenant defaults, audit qualifications, restatements, contingent liabilities, aggressive revenue recognition.

### 3. Material Contracts

- Top customer/supplier contracts; change-of-control and consent provisions
- Distribution, franchise, dealer, referral agreements
- Real property leases (options, renewal, assignment restrictions); deeds for owned property
- Equipment/capital leases, financing arrangements
- Loan agreements, credit facilities, security agreements, guarantees
- JV agreements, partnership agreements, NDAs, settlement agreements

**Red flags:** Change-of-control triggers, consent requirements, acceleration clauses, unusual indemnification, oral agreements, post-termination obligations.

### 4. Intellectual Property & Technology

- Registered IP: patents, trademarks, copyrights, domain names
- Trade secrets, know-how, common law marks
- All IP licenses (in/out): exclusivity, territory, royalties, termination rights
- Assignment agreements from founders, employees, contractors
- Software licenses (proprietary + open source), SaaS/cloud agreements, DPAs

**Red flags:** Unassigned founder IP, GPL/AGPL copyleft conflicts, freedom-to-operate gaps, missing work-for-hire agreements.

### 5. Litigation & Regulatory

- Pending lawsuits, arbitrations, mediations (status + exposure)
- Demand letters, cease-and-desist, threatened claims
- Agency investigations, consent decrees, administrative proceedings
- Settlement agreements, ongoing monitoring obligations
- Operating licenses/permits (expiration, violations)
- Regulatory compliance: antitrust, export controls, FCPA/UK Bribery Act
- Data privacy: GDPR, CCPA, HIPAA — policies, breach history, DPAs
- Whistleblower complaints, internal investigations

**Red flags:** Unquantified exposure, systemic compliance failures, successor liability risk, required regulatory approvals for closing.

### 6. Employment, Labor & Benefits

- Employee census: headcount by role, compensation, location, status (EE/contractor/PT)
- Key employee agreements, offer letters, severance, equity grants
- Non-competes, non-solicits, confidentiality agreements
- Employee handbook, leave policies (FMLA, state leave)
- 401(k)/pension docs, Form 5500, funding status; health/welfare plan summaries
- Equity plans (options, RSA/RSU), vesting schedules; bonus/commission plans
- Union contracts, CBAs, NLRB charges
- Employment claims: discrimination, wage/hour, misclassification

**Red flags:** Misclassified contractors, 409A violations, underfunded pensions, change-of-control severance triggers, key-man dependency.

### 7. Assets, Insurance & Risk

- Real property: deeds, title insurance, surveys, zoning, Phase I/II environmental
- Personal property: equipment list, liens, UCC filings, security interests
- Insurance: GL, E&O, D&O, property/casualty, cyber, industry-specific
- 5-year claims history; contingent liabilities (warranty, product liability, indemnification)
- DR/BCP plans, crisis protocols

**Red flags:** Coverage gaps, claims-made vs. occurrence tail exposure, uninsured losses, liens on key assets.

### 8. Environmental, Health & Safety

- Environmental permits: air, water, waste, hazmat (all jurisdictions)
- Phase I assessments (all owned/leased); Phase II where concerns identified
- Compliance history: violations, NOVs, consent orders, remediation
- Hazardous materials: generation, storage, disposal records, manifests
- OSHA 300/300A logs (5 years), citations, safety programs
- ESG: carbon/sustainability commitments, climate risk disclosures

**Red flags:** CERCLA/Superfund exposure, ongoing remediation, unresolved NOVs, ESG obligations creating future compliance burdens.

## Closing Summary

Conclude every checklist with:

- **Critical Findings** — material risks requiring deal-team escalation
- **Required Consents/Approvals** — third-party, regulatory, or lender consents to close
- **Recommended Follow-Up** — specialist engagement (environmental, benefits, IP)
- **Open Items** — documents requested but not yet received

## Pitfalls

- Tailor scope to transaction type: asset purchases → assumed liabilities and excluded assets; investments → cap table, anti-dilution, governance rights
- Adjust materiality thresholds to deal size and industry
- Flag oral agreements — they create successor liability risk
- For cross-border targets, flag jurisdiction-specific requirements (foreign investment review, local labor law, non-US tax)
- Do not render legal opinions — flag issues for attorney review
- Verify all regulatory citations for applicable jurisdiction and year [VERIFY]