Use time as a friend in ensuring your company is prepared to support 3rd party due diligence
Too often owners of private companies decide to sell their business only to find out too late that they aren’t ready to support the probe, aka due diligence, that the third party acquirer wants to conduct on their company. We work with company owners to help them conduct a due diligence dress rehearsal at least one year prior to attempting to exit and preferably two years prior.
There are several areas that the potential acquirer will probe and one of these is the legal documents related to the forming and running of your business. It’s common to have these properly put in place when the business is formed, but years later they are no longer current and before they can be shared, they need updating.
Below is a general (non-exhaustive) list of entity documents that you should gather for entity maintenance purposes and ultimately for sharing with the acquirer:
- Articles of Incorporation (including any amendments)
- Current Statement of Information
- Entity filings in each jurisdiction with the corporation has qualified to do business
- List of fictitious business names (copies of all registrations) or trade names used by the corporation
- Bylaws (including any amendments)
- Shareholder Agreement (or Buy-Sell Agreement)
- Capitalization schedule/table
- Stock ledger
- Founders Agreement (or similar agreements)
- List of all directors and officers (including titles)
- Copies of board of director and shareholders minutes or written consents for the current year and prior three years
You don’t want to try and do a deal with a third party only to find any of these needed legal documents are missing, incomplete, or out of date. There are several areas of your company that will need a dress rehearsal for due diligence, but if you’re looking for a place to start, start with the legal documents. In other blog posts, we share the lists for other areas of your business to prepare for due diligence.
