Buying a business can be a deeply involved and complex transaction for all parties, but particularly for the Buyer. Due diligence and careful analysis of the transaction are critical.
To thoroughly review and document all the elements of many different underlying assets, a good checklist is important, and might even be included in the purchase contrast. Even if only buying a company’s stock, a clear understanding of the underlying assets is important to know the value of the company stock being purchased.
A good checklist will usually apply to all those assets and how each needs to be handled in the transaction up to closing, and even post-closing. The contents of your checklist will likely vary depending on the nature of the assets. But commonly, your checklist of documents, diligence items, and reviews might include the following:
Letter of intent (the initial basic terms of the deal)
Asset purchase agreement
Escrow agreement (pre and post-closing funds)
Employment agreements of key holdover personnel
Noncompetition agreements
Nondisclosure or confidentiality agreements
Leases for real property or equipment
Intellectual property assignments
Service contracts on the real estate, buildings, or equipment
Supplier agreement assignments
Bill of sale (a receipt for transfer of all personal property such as equipment, vehicles, inventory, etc.)
Vehicle title certificates
Loan agreement and promissory notes
UCC financing statements (securing or revealing liens against all personal property)
Entity certificates of good standing and status
Additionally, there are usually exhibits with lists for more detailed information:
all assets being purchased or owned by the business
business names, trade names, trademarks, and internet domains
Employees and independent contractors
customers, clients, referrals, and other trade secrets\licenses and permits the seller holds
all liabilities and all encumbrances on the assets
Insurance policies and past claims
Financial statements are important to be reviewed and current (to verify the accuracy of any representations made in the purchase agreement):
Balance sheet
Income statements
Profit and loss statements
Accounts receivable
Tax returns or other documentation showing filings with IRS
Organizational documents (for a business sale)
The operating agreement, or shareholder agreement
Bylaws
Every asset purchase agreement due diligence checklist will be different and require some customization to fit the unique elements of your deal. Plan with these checklists so that no stone is left unturned in such an important transaction.
