Due diligence needs to be well organized, which is normally done by tracking the Due Diligence Checklist. The Target’s corporate records, contracts and other legal materials are all covered on that list. Its first section normally addresses Board minutes and other formal records of Board, Committee and Shareholder actions.
Review of how this section works in practice, of what review accomplishes for the Acquirer, illustrates the process for the various other categories of review, contracts, intellectual property protection, employees, and the like.
Here is a sample section of a Due Diligence Checklist from an Acquirer’s lawyers covering these corporate records. It is phrased as a request of the Target:
1.1.1 Organizational Documents. Provide a copy of the following with respect to Company and each of its Subsidiaries:
18.104.22.168 certificate of incorporation and bylaws (or their equivalents, and other constitutional documents for non-corporate entities), and all amendments and restatements thereto.
22.214.171.124 a list of jurisdictions in which Company and each of its Subsidiaries is qualified to do business or is otherwise doing business, certificates of good standing or qualifications to do business in each state or locality where such certification or equivalent qualification is required, and a list of all jurisdictions in which such certification or qualification is required but has not been obtained;
126.96.36.199 minutes of all meetings and materials presented (including financial projections) at such meetings (and all actions taken by written consent without a meeting) of the stockholders and the Board of Directors of the Company and its Subsidiaries;
188.8.131.52 all stock books, stock ledgers and forms of stock certificates of Company and each of its Subsidiaries.”
These records comprise the broad lines of a corporate history of the Target. The minutes of Shareholders, Board and Committee meetings can be long, but if they have been prepared correctly they will give a useful road map of the significant deals and other events in the Target’s life.
The most significant transactions involving any Target will likely have been authorized by Board action. Board minutes should reveal the most significant past deals that the Acquirer may need to review as part of its due diligence. Of course, if the Acquirer is buying an operating division, transactions involving other divisions in the Target may not need to be reviewed. Prior acquisitions of the Target are particularly significant.
Each Section of the Due Diligence Checklist will give the Acquirer and the Target a road map of what materials are needed to be communicated by the Target to the Acquirer.