Legal Due Diligence Checklist Template

Start about six weeks before the target signing date. The first task names the four people and asks two questions: a share purchase or an asset purchase, and where the target has companies, operations or customers. Every due date counts back from the signing date, in working days.

• Set up the legal due diligence — the target, the deal, the target signing date (which every due date counts from), whether the buyer is buying shares or a business and its assets, where the target has companies, operations or customers, and the four people; later tasks are assigned from these fields
• Agree the scope and materiality with the deal lead — the legal areas in scope, the group companies covered, the value above which a contract, claim or liability is reviewed in full, the look-back period, and what the financial, tax, property and management workstreams cover instead
• Confirm the confidentiality terms and any clean team rules — the non-disclosure agreement in place, who on the buyer’s side may see what, and, where the buyer competes with the target, clean team rules agreed with the competition advisers before commercially sensitive information is shared
• Agree the report format and who will rely on it — a red-flag report of issues only or a full report by area, how each finding is rated, the date of the information reviewed, and whether lenders or a warranty and indemnity insurer will read or rely on it
• Send the legal request list to the seller — the documents and answers needed for each area in scope, numbered so every reply and every data room document can be traced back to a request, with a date for the first replies

Get the review team into the data room, see what is missing, and keep one Q&A log and one issues list for the whole review. Answer the red-flag question on the issues list as soon as a red flag is found.

• Set up data room access for the legal team — a user for each reviewer, the folders each one may open, whether documents can be downloaded or printed, and the person who asks the seller for more access
• Check the data room index against the request list — which requests have documents, which are answered only in part, which are missing, and the documents in the room that no request asked for
• Set up the Q&A log and the issues list — one log of every question to the seller with its request number, date and answer, and one issues list of every finding with its area, rating and proposed protection, kept up to date until signing
• Agree how personal data in the data room is handled — which documents hold personal data about employees, customers or others, what is shared in full and what is summarised or has names removed at this stage, who may see it, and how long the buyer keeps it

Confirm who owns the target, what it owns and who controls it, from the public registers and the target’s own records. The deal structure adds a task for the shares or for the assets that transfer.

• Search the public company records for each group company — for each company: its registered details, officers, filing history, charges and any insolvency entries, checked against what the seller has told you
• Check the statutory registers and the people with significant control — the register of members and the share transfers behind it, the record of people with significant control, and whether both match the public register and the seller’s list of owners
• Map the group structure — every company in the group, where each is formed, who owns what percentage, and any dormant, overseas or jointly owned companies
• Review the constitution, shareholder agreements and board minutes — the articles or other constitution, any shareholders’ agreement, consents and pre-emption rights that affect the sale, and the board and shareholder minutes for decisions the seller has not disclosed
• Check charges, security and guarantees over the group’s assets — registered charges, security the lenders hold, guarantees given by group companies, and which of them must be released or need the lender’s consent for the deal
• Confirm title to the shares and every right over them — who owns each share being sold, that each share was issued properly and is free of any charge, and every option, warrant, convertible loan or other right that could give someone shares
• List what transfers and how each item moves — the assets, contracts, licences and liabilities the buyer takes on, those the seller keeps, and for each contract whether it moves by assignment, novation or the counterparty’s consent

Review every contract above the materiality threshold, find each consent the deal needs, and review the property the target occupies. Property title and environmental searches stay with the property workstream.

• List the material contracts against the materiality threshold — customers, suppliers, distribution and agency, licences, outsourcing, joint ventures and anything with an unusual term, with the ones below the threshold listed but not reviewed in full
• Review each material contract’s key terms — term and termination, exclusivity, non-compete and most-favoured-customer terms, liability caps and indemnities, and anything that ties the buyer’s wider group after completion
• Find every change of control, assignment and termination right — which counterparties can end or change a contract because of the deal, which need to consent and when, and which consents should be a condition of the deal
• Review the borrowing and finance documents — loans, overdrafts, leases of equipment and guarantees: amounts, security, events of default, and change of control or prepayment terms the deal triggers
• Review related-party and intra-group arrangements — contracts, loans and services between the target and its owners, directors or the seller’s other companies, and which of them end, continue or are replaced at completion
• List the properties the target owns or occupies — each site with its use, whether it is owned, leased or licensed, and the documents behind it, with title, searches and environmental reports handed to the property lawyers
• Review the leases for consent, break and change of control terms — landlord’s consent needed for the deal, break dates and rent reviews in the next two years, repair obligations, and any guarantee the seller’s group gives that must be replaced

Confirm the target owns what it sells and uses, and that it handles personal data lawfully. The countries answered on the first task add the register notes.

• Schedule the registered IP and check the owner of record — patents, trade marks and designs in each country, the owner on each register, renewal dates, and any registration still in the name of a founder, an agency or another company
• Confirm who owns the unregistered IP and the software — copyright, know-how, domain names and code the business relies on, and written assignments from the employees, contractors and agencies who created them
• Review IP licences in and out, and open-source use — what the target licenses from others and to others, exclusivity and change of control terms, and open-source licences whose terms could affect how the target’s own software is distributed
• Review the target’s data protection compliance — the personal data it holds and why, its privacy notices, records of processing, contracts with processors, transfers to other countries, and who is responsible for data protection
• Check personal data breaches, complaints and regulator action — breaches in the look-back period and how they were handled, complaints and requests from individuals, and any contact from a data protection regulator

Find every claim for or against the target and review the people who come with it. The leadership team’s own contracts and incentives belong to management due diligence. An asset purchase adds a task on the employees who transfer.

• List current, threatened and past disputes — claims for and against the target, regulatory investigations, and settlements in the look-back period, from the seller’s answers and your own searches
• Assess each material dispute with the target’s lawyers — the likely outcome, the amount at stake, legal costs to date and to come, insurance cover, and whether the accounts provide for it
• Review the employment terms that affect the deal — standard contracts and handbooks, contracts for key staff, notice periods, restrictive covenants, bonus and commission plans, and payments due because of the sale
• Check employment claims, consultation duties and union agreements — tribunal or court claims, grievances and disciplinary matters in the look-back period, collective agreements, and any duty to inform or consult employees about the deal
• Review pension and benefit plans — which pension and benefit plans the target runs or pays into, whether any promises a defined benefit, and whether contributions are up to date
• Plan the transfer of the employees who move with the business — who is assigned to the business, what information the seller must give and when, the duty to inform and consult, and the law that applies in each country

Check the target holds what it needs to trade, and flag every approval the deal itself may need. Merger control and foreign investment screening are for specialist advisers: this phase finds the questions and records their answers.

• List the licences, permits and authorisations the business needs — each one with its holder, conditions and renewal date, and whether it survives the deal, must be transferred or needs the regulator’s consent
• Review the target’s record with its regulators — inspections, warnings, investigations, fines and correspondence with regulators in the look-back period, and anything still open
• Check anti-bribery, sanctions and export control compliance — the target’s policies, agents and intermediaries, sales into higher-risk countries, sanctioned customers or suppliers, and any internal or official investigation
• Flag UK approvals for the advisers: the NSI Act and the CMA — whether the target carries on activities in one of the 17 sensitive areas that need mandatory notification under the National Security and Investment Act, and whether the deal may meet the CMA’s tests for a merger investigation
• Flag US filings for the advisers: HSR and CFIUS — whether the deal needs a premerger notification to the FTC and the Department of Justice under the Hart-Scott-Rodino Act, and whether a foreign buyer brings it within CFIUS review
• Flag merger control and investment screening in other countries — each country where the parties have sales, assets or companies, and the merger control and foreign investment rules local counsel says apply there
• Agree the approvals and consents timetable with the deal lead — every regulatory approval and third-party consent the deal needs, whether each must come before signing or before completion, and how long each is expected to take

Bring the findings together, agree what each red flag means for the deal, and get the decision before signing. Nothing after the decision task can be completed until it is done.

• Escalate each red flag to the deal lead — what was found, where, why it matters, what more the seller has been asked, and whether the timetable needs to move
• Agree how each red flag will be dealt with — a price change, a specific indemnity, money held back, a condition to fix before completion, a change of deal structure, or walking away
• Write the red-flag report — each finding by area with its rating, the documents behind it, the protection proposed, and the questions still open, with the date of the information reviewed
• Check the report with the other workstreams — the financial, tax, property and management findings that touch the legal ones, so each issue is counted once and has one owner
• Present the findings to the decision maker — the red flags, the protections proposed and the seller’s position on each, the approvals timetable, and the questions still open
• Decision maker decides on the legal findings — the decision maker records proceed, proceed with specific protections, or stop before the buyer signs; nothing after this task can be completed until it is done
• Record the decision to stop and close the legal review — tell the deal team, the advisers and the seller as agreed, record the reasons, return or destroy the seller’s information under the non-disclosure agreement, and mark the tasks that no longer apply as not applicable

Turn the findings into the purchase agreement: warranties, indemnities, conditions and the disclosure review. The issues list then goes to the team that runs completion and integration.

• Turn the findings into warranties in the purchase agreement — a warranty for each area where the review relied on the seller’s answers, with the findings that need a specific warranty marked in the draft
• Draft the specific protections for the red flags — a specific indemnity, money held back or a price change for each red flag the decision named, with who drafts and who agrees each one
• Set the conditions and the steps before completion — regulatory approvals, third-party consents and fixes the seller must make before completion, and what the seller may not do between signing and completion
• Check the disclosure letter against the findings — each disclosure against what the review found, any general disclosures, and new issues the letter raises for the first time
• Confirm the signing documents carry the agreed protections — the warranties, indemnities, conditions and any amount held back, checked in the final documents against the decision and the issues list
• Hand the issues list to the completion and integration teams — the open consents and approvals, the conditions to satisfy, filings to make after completion, and the findings integration should fix in the first months