Business due diligence: five checks before a significant transaction

Check the legal identity, registered representatives and whether internal or third-party approval is required. An authorized signature does not resolve every question about a major transaction.

Review title, encumbrances, material agreements, relevant disputes and obligations where appropriate. Obtain reliable records and clarify what the seller or service provider actually warrants.

Assess sector-specific authorizations, employment, tax, data processing and relevant anti-money-laundering obligations. Risk classification must reflect actual activities; a generic checklist is not a licensing opinion.

Separate confirmed facts, outstanding questions and legal recommendations. Use the findings to shape conditions precedent, warranties, indemnities and post-closing obligations.

Collecting extracts is not the same as conducting due diligence. Connect each finding to deal impact: can the counterparty sign, is an asset mortgaged, could a key contract terminate on a change of control, or is litigation or regulatory action pending? Separate verified problems, plausible risks and unresolved questions rather than presenting all findings as equal.

The report should identify who must remedy each concern, by when and what happens if the issue remains open. Potential protections include conditions precedent, representations, indemnities, price adjustments or postponement of closing. Choosing among them depends on the risk and negotiated allocation; there is no universally suitable standard clause.

A thick virtual data room does not establish that the buyer understands what will transfer. First identify whether the deal concerns shares, selected assets or contractual rights, because the liabilities and third-party approvals differ. Trace ownership and signing authority, material debts, litigation, tax positions, employment obligations, licences, intellectual property and title defects. Classify findings by the actual transaction consequence: condition precedent, price adjustment, warranty, indemnity or a reason to reconsider the deal. A red flag should describe the supporting document, its uncertainty and the proposed action. Verify public-registry information against contracts and corporate resolutions; absence of a recorded lawsuit is not proof that no unasserted liability exists. Findings should be dated and tied to the exact entity and jurisdiction.

A buyer is acquiring a company with a valuable lease, major customers and an unresolved tax assessment. A registry extract will not show whether the lease terminates on change of control or how the dispute affects value. Due diligence should separate deal blockers, remediable issues and risks to address through price or warranties. A report adds value when it informs the transaction structure and drafting, not merely when it lists documents reviewed.