If you're selling your business it's a great idea to start pulling together key due diligence documents even before the buyer asks for them. Having everything ready makes it easy for your own counsel to review everything for potential issues before you get into a purchase agreement and helps the transaction go more smoothly once you are in contract.
Here's a general list of what I typically request when representing a buyer. Note that not everything is applicable, and this list should be adapted to the specific transaction. Having said that, as I tell both buyers and seller's a key part of due diligence is disclosing what is not applicable as well as what is.
A. Organization and Good Standing
Even in an asset purchase it's important for the buyer to be certain the seller has the authority to sell what is being sold and that there are no issues with other shareholders or owners that may cloud the sale down the line. I always ask for:
The Company's Articles of Incorporation, Bylaws, amendments and minute book.
A list of shareholders and number of shares held by each.
Copies of agreements relating to shares.
A Certificate of Good Standing from the Secretary of State of the state where the Company is incorporated. (Usually obtained in escrow)
A list of all states where the Company is authorized to do business and annual reports for the last three years.
A list of the Company's DBAs and copies of registrations for them.
Some of the information above may not be relevant or available, but it's just as important
B. Financial Information.
In addition to what's already been mentioned:
The Company's credit report, if available.
Any financial projections or plans.
A schedule of all indebtedness and contingent liabilities.
A schedule of inventory.
A schedule of accounts receivable.
A schedule of accounts payable.
C. Physical Assets.
A schedule of fixed assets and locations.
All U.C.C. filings (typically pulled by escrow)
All leases of equipment.
A schedule of sales and purchases of major capital equipment during last three years.
D. Real Estate.
Copies of all real estate leases, deeds, mortgages, title policies, and surveys, zoning approvals, variances or use permits.
E. Intellectual Property.
Not every business has patents or "trade secrets", but every business has a trade name. It's important to understand who owns the rights to that name and what the business' rights are if someone infringes on that name.
A schedule of patents and patent applications.
A schedule of trademark and trade names.
A schedule of copyrights.
A description of important technical know-how.
A description of methods used to protect trade secrets and know-how.
Any "work for hire" agreements.
Consulting agreements and licenses or assignments of intellectual property.
Claims or threatened claims by or against the Company regarding intellectual property.
F. Employees and Employee Benefits.
While a well-written purchase agreement will address issues with regard to employees of the company or assets you are buying, it's worthwhile to know ahead of time if there are any potential problems. Whether you are legally protected in the case of claims against you by employees or not, you don't want to be in a position where you have to defend yourself and/or seek indemnification from the seller.
A list of employees with titles, pay and bonuses during last three years.
All employment, consulting, nondisclosure, non solicitation or non competition agreements between the Company and any of its employees.
The Company's employee handbook and all employee benefits, holiday, vacation, and sick leave policies.
Summary of retirement plans, if any.
A description of all employee problems within the last three years, including alleged wrongful termination, harassment, and discrimination.
A description of any labor disputes, requests for arbitration, or grievance procedures currently pending or settled within the last three years.
A list and description of benefits of all employee health and welfare insurance policies or self-funded arrangements.
A description of worker's compensation claim history.
A description of unemployment insurance claims history.
Copies of all stock option and stock purchase plans and a schedule of grants. (This has become more common even in small companies with the proliferation of option plans in technology startups leading to these plans being more common in other small businesses).
G. Licenses and Permits.
Copies of any governmental licenses, permits or consents.
Any correspondence or documents relating to any proceedings of any regulatory agency.
H. Environmental Issues.
Even if you don't believe the business has environmental exposure, having the seller affirmatively state in a due diligence response that there are no issues is helpful if something ever comes up.
Environmental audits, if any.
A listing of hazardous substances used in the Company's operations.
A description of the Company's disposal methods.
A list of environmental permits and licenses.
Copies of all correspondence, notices and files related to EPA, state, or local regulatory agencies.
A list identifying and describing any environmental litigation or investigations.
Federal, state, local, and foreign income tax returns for the last three years.
States sales tax returns for the last three years.
Any audit and revenue agency reports.
Any tax settlement documents for the last three years.
Employment tax filings for three years.
Excise tax filings for three years.
Any tax liens.
J. Material Contracts.
A schedule of all subsidiary, partnership, or joint venture relationships and obligations, with copies of all related agreements.
Copies of all contracts between the Company and any officers, directors, 5-percent shareholders or affiliates.
All loan agreements, bank financing arrangements, line of credit, or promissory notes to which the Company is a party.
All security agreements, mortgages, collateral pledges, and similar agreements. For example, if you've leased equipment or taken out a loan there's a good chance a security agreement covers some of your business assets.
All guaranties to which the Company is a party.
Any installment sale agreements.
Any distribution agreements, sales representative agreements, marketing agreements, and supply agreements.
Any options and stock purchase agreements involving interests in other companies.
The Company's standard quote, purchase order, invoice and warranty forms.
All nondisclosure or non-competition agreements.
All other material contracts.
K. Product or Service
A list of all existing products or services and products or services under development.
Regulatory approvals or disapprovals of any of the Company's products or services.
A summary of all complaints or warranty claims.
L. Customer Information.
A schedule of the Company's largest customers in terms of sales and a description of sales to those customers over the last 12-24 months.
Any supply or service agreements.
A description or copy of the Company's purchasing policies.
A description or copy of the Company's credit policy.
A schedule of unfilled orders.
A list and explanation for any major customers lost over the last two years.
All surveys and market research reports relevant to the Company or its products or services.
The Company's current advertising programs, marketing plans and budgets, and printed marketing materials.
A description of the Company's major competitors.
A schedule of all pending litigation.
A description of any threatened litigation.
Copies of insurance policies possibly providing coverage as to pending or threatened litigation.
Documents relating to any injunctions, consent decrees, or settlements to which the Company is a party.
A list of unsatisfied judgments.
N. Insurance Coverage.
A schedule and copies of the Company's general liability, personal and real property, product liability, errors and omissions, key-man, directors and officers, worker's compensation, and other insurance.
A schedule of the Company's insurance claims history for past three years.
A schedule of all law firms, accounting firms, consulting firms, and similar professionals engaged by the Company during past five years.
P. Articles and Publicity.
Copies of all articles and press releases relating to the Company within the past three years.