The most important due diligence requests in an M&A purchase cover the target’s corporate records and capitalization, financial statements, taxes, material contracts, intellectual property, employees and contractors, litigation and regulatory compliance, privacy and data security, customer and supplier relationships, and debt and assets. These requests help the buyer confirm what it is buying, identify liabilities and deal-blockers, and decide what protections to negotiate in the purchase agreement.
Due diligence is where a buyer tests the story told in the pitch and the letter of intent. For sellers, anticipating these requests and organizing a data room early can shorten the timeline and reduce surprises that lead to price reductions or broken deals. Below are ten core request categories, with the issues each is designed to uncover.
1. Corporate Records and Capitalization
- Charter documents, bylaws and all amendments
- Board and stockholder minutes and consents
- A complete capitalization table, stock ledger, option plan, grants, warrants, SAFEs and convertible notes
- Investor rights, voting, co-sale and right of first refusal agreements
Buyers want proof that every share and option was validly authorized and issued, and that the cap table matches the documents. Missing board approvals or undocumented promises of equity are common problems.
2. Financial Statements and Quality of Earnings
Request historical financial statements, current interim statements, accounts receivable and payable aging, revenue recognition policies, budgets and projections. Larger buyers often commission a quality of earnings review to test whether reported revenue and margins are sustainable.
3. Tax
Federal, state and local income tax returns, sales and use tax filings, payroll tax records, and any audits or notices. Buyers also look at entity classification, nexus in states where the company has employees or customers, and the status of any 83(b) elections and 409A valuations. Unpaid taxes generally stay with the target in a stock purchase or merger, and some tax liabilities can follow the assets in an asset deal, so buyers typically ask for a specific tax indemnity.
4. Material Contracts
Customer, vendor, partnership, licensing, lease and financing agreements. The key questions are whether any contract:
- Requires consent to assign or terminates on a change of control
- Contains exclusivity, most-favored-nation or non-compete restrictions that would bind the buyer
- Has unusual indemnification, liability or pricing terms
Structure matters here. An asset purchase requires each contract to be assigned, while a merger or stock purchase may still trigger change-of-control clauses, so the list of required consents can differ significantly between structures.
5. Intellectual Property
A list of patents, trademarks, copyrights and domain names, plus proof that the company owns what it uses. Buyers review founder, employee and contractor invention assignment agreements, such as CIIAAs, inbound and outbound licenses, open source software use, infringement claims and, increasingly, how the company uses AI tools and training data.
6. Employees and Contractors
- Employee census, offer letters, employment agreements and handbooks
- Contractor agreements and worker classification, including under California’s AB5 rules
- Benefit plans, bonus and commission plans, severance and change-of-control arrangements
- Wage and hour compliance, immigration status documentation and any employee claims
Change-of-control payments may also raise Section 280G issues that must be addressed before closing.
7. Litigation and Regulatory Compliance
Pending or threatened lawsuits, demand letters, settlements, government inquiries, licenses and permits, and industry-specific compliance such as healthcare, financial services or export controls. Environmental matters are relevant for companies with physical operations.
8. Privacy and Data Security
Privacy policies, data maps, vendor data processing agreements, security policies, security incident history and compliance with laws such as the California Consumer Privacy Act. Data breaches and noncompliant data practices can create liabilities that follow the business. See our privacy compliance page.
9. Customers and Suppliers
Lists of the largest customers and suppliers, revenue concentration, churn and renewal data, and any disputes. Heavy reliance on a single customer or vendor, especially one that competes with the buyer, can change the deal’s value or structure.
10. Debt, Assets and Liens
Loan agreements, guaranty agreements, UCC lien searches, equipment and real property leases, and insurance policies. Buyers need to know what debt must be repaid at closing, which assets are encumbered, and whether insurance will cover pre-closing claims.
Regulatory and Third-Party Approvals
Diligence should also identify approvals needed to close, such as stockholder approvals, contract consents and, for larger transactions, antitrust filings under the Hart-Scott-Rodino Act, whose thresholds are adjusted annually. Foreign investment review may apply when the buyer is a non-U.S. person and the target has sensitive technology or data.
Tips for Sellers
- Build a well-organized data room before signing a letter of intent
- Fix cap table, IP assignment and corporate approval gaps early
- Prepare accurate disclosure schedules, since they limit indemnification exposure
- Use confidentiality agreements and limit access to competitively sensitive information, particularly if the buyer is a competitor
The Takeaway
Due diligence shapes the price, structure and protections in an acquisition. Buyers should focus requests on the risks that matter for the target’s business, and sellers should prepare in advance so that diligence confirms value rather than eroding it.
Frequently Asked Questions
How long does due diligence take in an acquisition?
It varies with the size and complexity of the target and how prepared the seller is. Smaller deals with organized data rooms can move quickly, while larger or regulated businesses may require longer review periods.
What is a due diligence request list?
It is a checklist the buyer sends to the seller identifying the documents and information it wants to review, usually organized by category such as corporate, financial, tax, contracts, IP, employees and compliance.
What happens if diligence uncovers a problem?
The parties may fix the issue before closing, adjust the price, add a special indemnity or escrow, require closing conditions, or in serious cases walk away from the deal.
Should sellers do their own diligence before a sale?
Yes. A seller-side review can identify and correct issues such as missing IP assignments or cap table errors before a buyer finds them, which can protect value and speed up the process.
How Sutter Law Can Help
Sutter Law advises buyers and sellers on due diligence, deal structure and purchase agreements as part of our mergers and acquisitions practice. Contact us for a free consultation.
This article is general information, not legal advice. Reading it does not create an attorney-client relationship.
