Sample Legal Due Diligence Checklist

Transcription

1 Sample Legal Due Diligence Checklist Version 1.0

2 This checklist gives examples of the type of information that an investor is likely to request when considering providing equity funding. This checklist assumes that your business is a limited company (below, the Company ). If your business takes a different legal form, such as a trust or a partnership, some of the precise requirements are likely to be different, but the list below should still be a useful guide for you. 1. Strategy Information in relation to the company s business strategy and intentions. This could include you needing to provide: a description of the Company s goals and objectives including any key assumptions driving them and copies of any third party reports / research used to construct the business plan; a description of the process by which the strategy is developed and any anticipated changes to these strategies; a description of strategies used to achieve goals, including marketing and identification of growth opportunities; details of others (including competitors) operating in the space and how you are dealing with their presence; and details of any major areas of strategic concern for management, key business plan risks and any adverse publicity in the last twelve months. 2. Risks A description of the key risks (e.g., market, technical, legal, political, etc.) that you believe the Company is exposed to and any steps you have taken to manage these risks. What are the key risks that are specific to your sector? 3. Developments Details of any material developments or any material facts which you consider may be relevant to a prospective investor. For example, do you anticipate any restructuring or changes to management? Page 2

3 4. Constitutional documents and meeting records Information in relation to the Company s incorporation and operation. This is likely to include you needing to provide: a copy of the Company s certificate of incorporation and articles of association and any amendments to them; a copy of the shareholder agreement (if such an agreement exists); a copy of any minutes of shareholders and directors meetings where any resolutions have been passed or any written resolutions or other consents to actions without a meeting; and a copy of any financial projections or reports that have been prepared for any shareholders or directors meetings. 5. Management Information in relation to the individuals in management positions within the Company. This could include you needing to provide: a description/ organisation chart of the functioning of the board of directors and its relationship with senior management for the Company; personal details (including terms of office), CV and function within the Company of each of the directors and of each member of senior management; details of any interests held by each director, officer and any connected people (including spouses and children) in the share capital of the Company, including information about the individuals holding the interests; a description of all actual or potential conflicts of interest that each director and member of senior management may have that the Company is aware of; information in relation to any outstanding loans granted by the Company to the directors (and, if relevant, officers) and any connected person and also of any guarantee provided by the Company for their benefit, including any security over any shares in the Company that has been created by a director; information in relation to any contracts, plans or arrangements regarding election or termination of directors and members of senior management of the Company; information in relation to any changes at senior management level since [ ], and whether any additional changes are anticipated in the coming year; and details of whether any of the directors or senior management has at any time been investigated in connection with or convicted of financial fraud or other financial irregularity. 6. Group Structure Information in relation to the structure of the Company and how it is organised. This could include you needing to provide: details of any other business entities in which the Company has an interest; details of any parent companies and material owners of the Company; the Company s share register; details of any jurisdictions in which the Company is licensed to do business; details of any joint ventures or projects in which the Company is participating; details of any past or proposed changes to the Company s structure; and information in relation to any intra-group agreements to which the Company is a party. This could include you needing to provide details of any indemnities or guarantees. Page 3

4 7. Existing loans and security Information in relation to the Company s current borrowing arrangements and any specific instances of the Company lending money or granting security. This could include you needing to provide: a list of the Company s existing credit facilities, including material terms and current status; all documents evidencing the Company s borrowing arrangements, including (for example) mortgages, bank letters or agreements confirming lines of credit, or letters of credit; any material correspondence with lenders, including reports as to compliance with material covenants; copies of any agreements under which the Company is obliged to provide funds to another person (for example, in the form of a loan or capital contribution); all other documents or agreements under which the other party may have the right to accelerate or call due the amounts borrowed by the Company; a list of any leases, securitisations, receivables sales and other "off balance sheet" financings entered into by the Company; a copy of any material correspondence with creditors, including any presentations which have been given; a list of any shareholder or intra-group loans to and from the Company; and information in relation to any occasions on which the Company has defaulted on any of its obligations to creditors or encountered any issues with obtaining credit. This may include you needing to provide the details and current status of any defaults. 8. Arrangements and communication with shareholders Information in relation to any special arrangements the Company has with its shareholders, and how it communicates with them. This could include you needing to provide: details of any specific arrangements or agreements with shareholders (for example, regarding voting rights or any restrictions on share transfers); a summary of any restrictions on (or requirements for) dividends from the Company, and copies of the underlying agreements; any press communications to shareholders that the Company has made in the last year; and details of the share capital of the Company, including the amount of issued capital and information in relation to the characteristics of each class (for example, the voting rights or any unpaid capital). 9. Government agreements Information in relation to any interaction the Company has had with any government or local or other authorities. This could include you needing to provide copies of any agreements between the Company and a government or any authority, with details of any subsidies or benefits from which the Company benefits. Page 4

5 10. Licences, permits, consents, registrations and designations Information in relation to any licences, permits and consents which are necessary for the Company to carry out its business on a day-to-day basis, including details of the validity, renewal, termination or amendment, including any significant correspondence with the relevant licensing bodies. 11. Other filings, correspondence and notices Information in relation to any other communication that the Company has had with regulatory, licensing or governmental agencies since its formation, and details of any fines paid in respect of any violations. 12. Termination and change of control Information in relation to the effect that any change in those who own or control the Company (a Change of Control ) might have on existing agreements, registrations and licences etc. This could include you needing to provide: details of whether any agreements, registrations or licences etc. are liable to terminate, or may not be renewed, following a Change of Control; and details of any procedures necessary to transfer (where possible) those agreements, registrations or licences etc. in the event of a Change of Control. 13. Principal trading activities Information in relation to the Company s trading activities, customer base and supply chain. This could include you needing to provide: a summary of the principal activities of the Company, stating the main categories of products sold and / or services supplied; a summary of any material supply / trading agreements (including copies if available); copies of any agreements which cannot be terminated within three months without the payment of compensation, or might present specific requirements on a change of control (for example, notification to a third party); a list of the Company s major customers and major suppliers and a description of the business transacted with each; copies of all material terms and conditions used by the Company for the purchase or sale of goods or services and a description of the circumstances of their use; and information in relation to any marketing agreements the Company has entered into, for example with distributors, commercial agents or sales representatives. 14. Guarantees Information in relation to any circumstances where the Company has undertaken to guarantee another s obligations. 15. Trade associations Information in relation to any trade association memberships the Company has, which could include you needing to provide: copies of any membership agreements; and evidence of compliance with the associations codes of conduct Page 5

6 16. Other agreements Information in relation to any other agreements which have not been covered by other areas of this list which might have a material effect on the Company s financial or general position. This could include you needing to provide: details of any agreements which are loss-making or have other financial implications for the Company; details of any agreements which might require the Company to make capital expenditure; copies of any agreements or arrangements involving the Company that restrict competition; a summary of the Company s current insurance policies, including copies of related policy documents, certificates and letters, and details of any outstanding or significant past claims; confirmation that there is no actual or pending litigation, complaint or investigation by any competition authority, and that there are no outstanding or past infringements of any applicable competition law or regulation; details of the Company s environmental and social policies and systems; details of any certificates issued by applicable authorities certifying that the Company is (or is not) complying with applicable legal and regulatory requirements (for example, environmental and health and safety); information in relation to any breach of legal and regulatory requirements including any litigation or enforcement measures; and details of any activities or operations of the Company which require an authorisation but where there is no authorisation or the relevant authorisation is held by a party other than the Company. 17. Intellectual property Information in relation to any intellectual property rights owned, used or licensed by the Company. This could include you needing to provide: details of any intellectual property rights owned or used by the Company (including, for example, any certificates and a description of the Company s rights); a list of all pending applications for the registration of any intellectual property rights by or on behalf of the Company; details of any licensing agreement to which the Company is a party, either as licensor or licensee, in respect of any of the intellectual property rights; details of any actual or threatened disputes brought by or against the Company relating to any of the intellectual property rights, including objections to or infringement of the intellectual property; and a list of all licences, permits and approvals required but not obtained by the Company. 18. Data protection Information in relation to the Company s use of personal data. This could include you needing to provide: a summary of all computer systems and all computer software and hardware used in relation to the Company; details of any known or suspected unauthorised access to computer systems or software owned or used by the Company (including the introduction of a computer virus or any other malicious attack on such computer system or software) within the last five years; and details of the Company s policies or procedures for the collection of the personal data it requires for its continued operation. Page 6

7 19. Accounts and financial statements Information in relation to the Company s accounts and financial statements for the last three years of operation. This may include you needing to provide: consolidated audited financial statements of the Company for the past three fiscal years and unaudited financial statements for all interim periods, including any reports by independent accountants; a current internal budget, operating and financial plans and projections (including any assumptions); a description of all material capital expenditure plans of the Company approved or under consideration; a description of the Company s accounting policies; any material correspondence between the Company and its external auditors; a list of material contingent liabilities of the Company not reflected on its most recent audited balance sheet; a description of any other off-balance sheet transactions, including a description of the business purpose of such agreements and key terms and conditions that govern the arrangement; and forecasts or financial projections relating to periods for which financial statements have not been published. 20. Taxation Information in relation to the Company s tax situation. This could include you needing to provide: all documentation relating to the assessment of taxes or other significant tax matters relating to the Company; details of any possible reassessment by or disputes with any taxation authorities; details of any tax audits; details of any changes in corporate tax policy in the past year which impact the Company; copies of any material tax sharing or tax indemnity agreements; and details of any pending or ongoing material tax disputes. 21. Risk management Information in relation to the Company s risk management policies, procedures, and controls. This could include you needing to provide: information on the Company s use (if any) of derivatives for hedging or other purposes; details of any litigation involving an executive officer or director or affiliate of the Company concerning bankruptcy, criminal activity or violation of business practices; all documentation relating to material customer complaints or patterns of repeated customer complaints; details of any claims of product liability over the preceding years (even if they are not now outstanding and did not lead to litigation); all material reports by the Company s management, and any material correspondence or written material to or from management, to the external auditors or board committees relating to the Company s compliance with internal controls; and details of any other risks or concerns to which the Company is or may be exposed in the future. Page 7

8 22. Employment Information in relation to the Company s employment policies and contracts, and any issues arising in connection with employment matters. This could include you needing to provide: details of all personnel employed by or engaged by the Company who earn more than [ 60,000] per annum and copies of their employment contracts; details of the average number of persons employed in the Company (including any changes over the past three financial years) by category of activity; copies of the Company s standard terms and conditions of employment and standard form employment contracts; copies of any other agreement (for example contractor or agency agreements) by which an individual is supplied by or to the Company; copies of the Company s pay structure and procedures for review; a summary of any benefits provided to employees or directors by the Company (including copies of all explanatory material), details of to whom they are made available and a statement of whether these benefits (including pensions) meet or exceed any legal requirements; details of the Company s human resource policies, procedures or codes of practice (including copies of any handbooks, manuals or other documents); details of any recognised trade union, works council or other employee representative bodies within the Company and brief details of any past or current negotiations or disputes with those bodies; details of any redundancies, dismissals or litigation involving employees which are pending or have taken place in the last three years; details of any agreements with staff (where not covered above) specifically in respect of intellectual property; an explanation of the Company s strategy with respect to employee numbers over the next five years; and details of each pension or life assurance scheme operated by the Company or in which it or its employees otherwise participate (including documentation). 23. Interests in land Information in relation to any freehold or leasehold interest in land (including buildings) that the Company may have. This could include you needing to provide: details of all the Company s freehold and leasehold interests (including key terms of leases and copies of documents); details of all land or buildings occupied by the Company under licence (including key terms and copies of documents); details of all leases or licences to occupy granted by the Company to third parties over land or buildings (including key terms and copies of documents); details of actual and potential liabilities in respect of leasehold properties; and details of any persons residing or having settled on any of the properties. Page 8

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