When considering the acquisition of a private company, a thorough due diligence process is crucial to ensure an informed decision. The primary goal of due diligence is to provide the buyer with full transparency into the company’s operations, finances, and potential liabilities. This comprehensive review helps uncover hidden risks or liabilities not reflected in financial statements, assess compliance with regulatory and third-party obligations, and confirm the accuracy of the seller’s representations and warranties. Proper due diligence allows the buyer to adjust purchase terms, validate the company’s valuation, and mitigate post-closing risks, ensuring a smoother acquisition process.

I have included a checklist for common due diligence items when purchasing a business in Massachusetts.

Due Diligence Checklist for the Acquisition of [NAME OF TARGET]

In connection with the potential acquisition of [NAME OF TARGET], together with its subsidiaries and predecessors (the ‘Company’), please provide the following documents and materials. If any requested information has been provided, is unavailable, or not applicable, please indicate so in your response. This request is part of an ongoing due diligence investigation, and additional requests may be submitted as necessary. Unless specified otherwise, please provide documents related to activities from the past five years. All provided documents should include any amendments, supplements, and ancillary materials. If any requested agreements exist orally, please provide a written summary. For any questions or clarifications, please contact us at [CONTACT INFORMATION].

I. General Corporate Records

1. Corporate Structure & Records

• List of subsidiaries and affiliates, with relevant corporate documentation for each.
• List of U.S. and foreign jurisdictions where the Company is qualified to do business or regularly operates, along with evidence of qualification and good standing in each jurisdiction.
• Copies of minute books for board, stockholder, and committee actions since the Company’s formation, including authorizations related to the present transaction.

2. Corporate Documents

• Certified copies of all corporate charter documents (as amended to date).
• Current bylaws, including any amendments.

3. Ownership and Securities

• Stockholder, option, and warrant holder lists, reconciling with stock ledgers.
• Copies of all agreements related to the ownership or voting of securities (e.g., stock purchase agreements, voting trusts, preemptive rights).
• Stock ledgers and transfer books, including records of stock issuances, proper authorization, full payment, and stock certificates.
• List of current officers and directors.

II. Financial Information

4. Accounts & Liabilities

• Detailed explanation of off-balance-sheet arrangements, if any.
• Aging schedules for accounts receivable and payable (past five years).
• List of assets (fixed and unfixed).
• Copies of all business plans, including major capital expenditure plans.
• Description of critical accounting policies, including revenue recognition methods.

5. Financial Statements

• Historical audited financial statements for the past [NUMBER] years.
• Interim financial statements for the current fiscal year.
• Projections for the next [NUMBER] years, including supporting assumptions.
• Auditor management letters or special reports, and any company responses.

III. Taxes

6. Tax Compliance

• Copies of correspondence with taxing authorities and any revenue agent reports.
• Documentation of compliance with federal, state, and local tax regulations (e.g., excise, sales, payroll).
• Information on any pending audits, assessments, or tax disputes.

7. Tax Filings

• Federal, state, and local tax returns for the last [NUMBER] years.
• Details of any tax-sharing agreements or IRS audits within the last five years.

IV. Real Property

8. Owned & Leased Property

• Documents regarding zoning status, land-use permits, and environmental assessments.
• Copies of all real estate leases, subleases, and purchase agreements.
• List of all real property (owned and leased), with deeds and title insurance policies.
• Recent surveys, appraisals, and any government correspondence related to property matters.

V. Personal Property

9. Assets

• Conditional sales agreements, financing leases, and liens on personal property.
• Bills of sale, motor vehicle titles, and evidence of personal property ownership.
• Equipment and machinery lists, including owned and leased assets.

VI. Intellectual Property

10. Infringement Claims

• Summary of any pending or threatened intellectual property disputes.
• Agreements related to confidentiality, non-disclosure, and trade secret protection.

11. Patents, Trademarks, and Copyrights

• Summary of U.S. and foreign patents, trademarks, and copyrights (pending, issued, and expired).
• Details of any intellectual property licenses or assignments, including agreements preventing transfer.

VII. Privacy and Data Security

12. Policies & Incidents

• Copies of privacy and data security policies.
• Data inventory and processing descriptions, including internal and external audits.
• Documentation of any data breaches or incidents in the last [NUMBER] years.

VIII. Material Contracts

13. Contracts

• Copies of agreements with insiders, affiliates, and competitors.
• Major supply, distribution, and sales contracts, including any joint ventures or license agreements.
• Loan agreements, security agreements, mortgages, and indentures.
• Any contracts subject to change of control provisions.

IX. Personnel and Management

14. Employee Information

• List of employees with compensation details for officers and directors.
• Organizational chart, including stock ownership and compensation details for officers and directors.
• Copies of employment agreements, non-compete agreements, and employee manuals.
• Details of bonus, profit-sharing, stock-option, and retirement plans.
• Status of collective bargaining agreements and labor relations.

X. Regulatory and Compliance

15. Compliance Reports

• Copies of filings with federal, state, or local regulatory agencies (e.g., EPA, OSHA).
• Reports or audits on the Company’s compliance with relevant regulations.
• Documents related to environmental compliance, including notices or violations.

16. Licenses and Permits

• List of all governmental licenses, permits, and approvals.

XI. Legal Proceedings

17. Litigation and Claims

• Details of intellectual property disputes, customer complaints, and governmental investigations.
• Description of all pending or threatened litigation, investigations, or claims.

XII. Insurance

18. Insurance Policies

• Copies of all insurance policies (e.g., D&O, property, cyber, liability).
• Description of any significant claims or anticipated changes to premiums.

XIII. Miscellaneous

19. Additional Documents

• Copies of product warranties, disclaimers, and descriptions of any product recalls or withdrawals.
• Press releases, private placement memoranda, and compliance reports provided to lenders within the past five years.