Due diligence is done by investors or lenders to make sure your business is operating properly and efficiently. The detailed due diligence study will uncover any accounting errors and any operational issues. After completing the due diligence study, investors or lenders must be satisfied that they are investing money in a company that conducts their business in the best possible way. The due diligence study will review the following fifteen areas:

one. Corporate records:

o The original articles of incorporation or articles of organization of the company.

o Bylaws and minutes of any Board meetings, executive committee meetings and

shareholders meetings

o Issuance and transfer of shares

o The communication of the company with the shareholders

o Press clippings and press releases

o Applications and documents authorizing the company to do business in another state

o Shareholder agreements, votes, powers of attorney and other similar documents

o Organizational chart of the company showing how it is structured and if there are subsidiaries

two. Sure:

o All insurance policies, their coverage limits, deductibles, renewal dates, and premiums

paid or due

o Insurance claim history

3. Government regulations and submissions:

o Reports and correspondence with any government authority

o Licenses, permits, approvals, etc.

o Bonds provided for licenses, permits, etc.

o Records of any government investigation, inquiry, or inspection

o Government orders that the company must comply with

Four. Money:

o Documents proving loans, secured and unsecured, and personal guarantees

o Bank agreements confirming lines of credit

o Documents proving the sale, subsequent lease, installment purchases, sales contracts, loan

agreements

o Correspondence to and from lenders

o Evidence of satisfaction or bonds or debts

5. financial information

o Audited financial statements

o Unaudited monthly and quarterly financial statements

o Capital budgets, changes in accounting practices

o Inventory Summary

o Age of accounts receivable and payable

o List of all assets with purchase price

o Correspondence with internal and external accountants

6. Tax:

o Federal, state and local tax returns

o Any adjustment, liquidation, recovery or notice with the tax authority

o FICA, FUTA and other employee withholdings

o Calculations of tax base, accounting base and depreciation of all assets

7. Client information

o Customer Agreements

o List of the 10 most important clients and list of sales to each one

o Government or quasi-government customers

o Catalogs, product literature, advertising and price lists.

8.

o Agreements relating to the distribution of shares, stock options, preferential subscription rights and

option plans

o Agreements or contracts relating to capital expenditures

o Licenses, agreements, franchises, joint ventures or association agreements

o Interconnection contracts, leases, any document that limits the business of the company,

and non-compete agreements

o Agreements entered into in the normal course of business and agreements outside the

normal course of business

o Agreements to pay or indemnify the debts or liabilities of third parties

o Documents relating to the acquisition or disposition of businesses or assets

o Agreements or contracts with directors, officers, shareholders, or affiliates or relatives of

such parties

o Examples of purchase orders and distribution agreements

o Copies of documents that prove the interest of the company or of the shareholders in any entity of the

same industry

o Barter contracts

9. Employee Related Documents

o Labor, union, non-union agreements, memorandums of understanding, grievances

settlements

o Job offer letters

o Consulting contracts and independent contractors

o Personnel Policies Manual

o Employee health benefits, bonuses, deferred compensation, pension, profit sharing, stock

options, employee stock purchases, retirement and other employee benefits

o Financial statements and list of assets and valuation for all employee plans

o Actuarial reports and no funding for any employee plan

o Tax returns and other communications with tax authorities regarding employee plans

10 royal property

o Description and copies of all real estate leases and options

o Mortgages in which the company is a party

o Deeds, title reports, expert reports and occupancy certificates of all real estate owned in

totally or partially by company

o Special use permits or variations for any property occupied by the company

eleven environmental issues

o Information about compliance or non-compliance, claims, permits, licenses,

correspondence and notices with any environmental protection law or regulation

o Inspections, citations, audits, feasibility studies, corrections and pending execution

behavior

o Spill reports, notifications, cleanup requirements, and financial estimates for cleanups o

violations

o Correspondence, memos and reports within the company related to environmental matters

o List of all surface and underground tanks, their contents and their location

o Information about ownership and previous uses or property of the company

12 intellectual property,

o All patents, patent applications, invention disclosures, and list of material non-patent items

o Ownership documents or other agreements relating to the acquisition, security and

confidentiality of information

o Trademarks, pending trademark applications, registrations, renewals and unregistered.

trademarks

o Trade names, form and territory of use of trade names, and state or federal failures of

tradenames

o Concurrent use agreements, settlements or registrations

o Copyrights, copyright applications, registrations, renewals, assignments and documents

o Any patent, trademark, trade name or copyright license

o Controversies, judicial procedures, infractions, sentences, decrees, agreements or

orders relating to patents, trademarks, trade names and copyrights

13 banking

o Bank accounts, credit agreements, debt instruments and lines of credit

14 Litigation/Disputes

o All documents related to any current or pending litigation, administrative proceedings,

government investigations, disputes, complaints and inquiries

o Consent decrees, judgments, court orders, settlement agreements to which the company is

a party

fifteen. Miscellaneous

o Analysis of investment bankers, engineers, management consultants, accountants

o Marketing studies, credit reports and other financial reports

o Pending powers of attorney

o Organizational charts, job descriptions, job titles, salaries, start dates, and bonuses

o Internal management reports

This list should help you prepare, but it is only the legal part of a due diligence study. There may be other areas considered in a due diligence study, such as product or service studies, competitive analysis, market analysis, and background and reference checks. Investors or lenders often conduct due diligence before making any investment or loan.

Jo Ann Joy, BBA, CEO
The future of your business starts here!

Jo Ann can be reached by phone at (602) 663-7007, by fax at (602) 324-7582, by email at [email protected]and by mail to 2313 East Ocotillo Rd., Phoenix, AZ 85016. Copies of any article will be provided free of charge.

For information on other important legal, tax and business topics, free copies of articles or eBooks, visit our website at u>www.IndigoBusinessSolutions.net. Copyright 2006. All rights reserved. Indigo Business Solutions is a registered trade name.