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16 Elements of a Due Diligence Checklist

     

If your startup is raising funds, licensing IP, or going through M&A, it is critical that your business is ready for due diligence. During any major transaction your investors, licensees, or purchasers will require detailed information about your business, and if you aren’t prepared for the process it could literally mean the difference between having a business or deal that succeeds and one that fails. So, be advised, it is in your best interest to get organized now and remain ready for an opportunity, whenever it may present itself.


Below you will find an informational list that provides a general overview of the 16 elements the due diligence process will most likely cover, regardless of your transaction type.



1. Corporate Records

Expect to share information about the organization of your company; your internal company communication documents; any relevant historical events; a list of all entities currently tied to your business; a comprehensive list of all entities with significant interest in the business; and any information about your business operations, permissions, and employees.

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2. Stockholder Information

You’ll most likely be required to share stock certificates, books, and transfer ledgers; any applicable written or oral agreements; and any documentation pertaining or possibly affecting the stock of the company.

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3. Securities Issuances

You’ll need to disclose any documents connected to company equity or debt; samples of stock certificates, options, and purchase plans; as well as any agreements, forms or permits.

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4. Financing Documents

Expect to show any and all documentation and communications regarding to all debt or outstanding financial commitments; all documents confirming credit; and copies of all notes payable or notes receivable from any member of the company that have been outstanding at any time during the past year.

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5. Other Material Contracts

You’ll need to show record of any agreement or contract that the company is party to, including comprehensive lists of key customers and suppliers, company property agreements, sales agreements, inter-company agreements, purchase agreements, and more.

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6. Management/Employees

When it comes to personnel, expect to share an exorbitant amount of information. Some items you should expect to share are as follows: it's imperative to have detailed records of corporate policy and training resources pertaining to hiring, benefits, compliance and controls; company organizational charts; details about the number of employees and their roles and responsibilities, copies of all employee documentation/compensation- including tax information, complaints, and other legal information.

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7. Financial Information

Just expect to share all of it. And don’t forget the details! Prepare to disclose anything and everything you could be possible think of that is financially related. Oh, and those little things that that you don’t think matter, well they do!

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8. Sales and Marketing

Yes, this matters! Prepare to share information about third party developers, your competitors, market research/studies, any outside company analysis, marketing and sales collateral about the company and your product(s), marketing agreements, and all related policies and procedures.

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9. Real Property

If your business owns property, it will be expected that you share all related information.

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10. Intellectual Property

Now here is where you want to be very careful. Sharing patents, intellectual property, and proprietary information is an absolute must. It’s often the piece that gives your company value. So, you will want to make sure that you store share this information in a secure manner and make sure that you have complete control over it at all times! There is no way around this one, so cover all of your bases, protect your assets, and we can’t say this enough-share this information securely.

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11. IT Systems and Networks

Here is where you’ll need to explain the platforms your company uses to operate. You’ll share information about how your company communicates internal information, your company website and web services, web security, any third party interaction, and how your company uses these elements to communicate and interact with customers.

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12. Environmental

If your business uses toxic chemicals or controlled substances prepare yourself to explain how you use and store them, as well as all compliance related information.

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13. Governmental Regulations and Filing

You will need to provide documentation of any foreign or domestic governmental inquires, contracts, and/or correspondence. Including any franchise filings.

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14. Litigation and Audits

All litigation must be disclosed. Including any related correspondence, legal claims, violations that could be connected to the company, either directly or through a partnership or joint venture.

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15. Insurance

You’ll need to provide a schedule of all policies and claims, and an analysis of payments paid. Additionally prepare to provide a schedule of threatened or potential claims as well.

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16. Taxes

Last but not least, prepare to share copies and correspondence of all federal, state, and foreign tax documentation. Including up to three years of correspondence from outside tax advisors and accountants.

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While this may seem like a lot of information to keep organized and currently updated at all times, there are ways to simplify the process. Utilizing a secure corporate repository, like a SecureDocs Virtual Data Room, ensures that you know exactly where your most critical corporate documents are at all times, gives you the ability to access them or share controlled access to them at a moment's notice, and facilitates complete transparency into how key players are viewing your documents- all from an encrypted and secure space. This allows you to remain in control, confident, and ready for opportunity at all times.


Additionally, utilizing a corporate repository as soon as possible means that you are adding your critical documentation little by little. So, while this might seem like a lot of work to get up and running initially, if you start using your corporate repository early on in your business, you’ll be one step ahead. Giving you time to focus on the success of your business, not paperwork.

 


DISCLAIMER: The due diligence checklist provided by SecureDocs, Inc. is intended for informational purposes only and is not updated regularly. Please note that SecureDocs, Inc. is not engaged in rendering legal, accounting, or other professional services or advice, and any content provided by SecureDocs is not intended to be a substitute for legal advice.



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