What Is Legal Due Diligence?

Legal due diligence is the systematic investigation of a company's legal affairs before a transaction — whether it is a merger, acquisition, investment, or partnership. It uncovers risks that could derail deals, inflate costs, or create post-closing liabilities. For attorneys handling M&A transactions, a structured due diligence checklist is not optional — it is the difference between a clean close and a costly surprise.

This checklist covers the 35 essential items every legal team should review, organized by category. Use it as a starting framework and customize it for your specific transaction type.

1. Corporate Organization and Good Standing

Start with the basics: does the target company legally exist and operate as represented?

Certificate of incorporation and all amendments
Bylaws or operating agreement (current version)
Good standing certificates from state of incorporation and all operating states
Board and shareholder meeting minutes (last 3-5 years)
Organizational chart showing all subsidiaries and affiliates
List of jurisdictions where the company is qualified to do business

2. Capitalization and Securities

Understanding who owns what — and what obligations attach to ownership — is critical for deal structuring.

Cap table showing all outstanding shares, options, warrants, and convertible instruments
Stock purchase agreements and shareholder agreements
Option plans and outstanding grants with vesting schedules
Anti-dilution provisions and preemptive rights
Voting agreements and proxies

3. Material Contracts

Contracts are where hidden risks live. Review every material agreement for change-of-control provisions, termination clauses, and unusual obligations.

Customer contracts (top 10 by revenue, plus any with unusual terms)
Supplier and vendor agreements
Partnership and joint venture agreements
Loan agreements, credit facilities, and guarantees
Lease agreements (real estate and equipment)
Non-compete and non-solicitation agreements
Change-of-control provisions in all material contracts

4. Intellectual Property

For technology and knowledge-based companies, IP can be the most valuable asset — and the most contested.

Patent portfolio (granted, pending, and abandoned applications)
Trademark registrations and applications
Copyright registrations
Trade secret policies and employee invention assignment agreements
IP license agreements (inbound and outbound)
Open source software usage and compliance

5. Litigation and Regulatory

Pending or threatened litigation can dramatically affect deal value. Regulatory exposure is equally important.

All pending lawsuits, arbitrations, and administrative proceedings
Threatened litigation (demand letters, pre-suit correspondence)
Settlement agreements from past disputes
Government investigations or inquiries
Regulatory compliance status (industry-specific licenses, permits)
GDPR, HIPAA, or other data privacy compliance documentation

6. Employment and Labor

People risks are deal risks. Employment issues can create significant post-closing liabilities.

Employee roster with titles, compensation, and tenure
Employment agreements for key executives
Benefit plans (health, retirement, equity) and compliance status
Pending or threatened employment claims
Independent contractor agreements and classification analysis

7. Tax

Federal and state tax returns (last 3-5 years)
Tax audit history and any ongoing disputes
Net operating loss carryforwards and tax credits
Sales and use tax compliance
Transfer pricing documentation (for multinational targets)

How to Use This Checklist Effectively

A checklist is only as good as the process behind it. Here is how to maximize its value:

Customize for your deal type — An acquisition of a SaaS company requires different emphasis than a manufacturing target. Add or remove items based on industry and deal structure.
Assign owners — Each category should have a designated reviewer. Corporate items go to the corporate team, IP to IP counsel, etc.
Set deadlines — Due diligence has a time limit. Create a timeline with milestones for each category.
Use a data room — All documents should be organized in a virtual data room with consistent naming conventions and version control.
Document findings — Every red flag, missing document, and open question should be logged. Use this log to negotiate reps and warranties.
Leverage AI tools — Modern document review tools like Whisperit can help legal teams dictate findings, draft memos, and organize notes faster. When you are reviewing hundreds of contracts, speed matters.

Red Flags That Should Stop a Deal

Not every finding is a deal-breaker, but some should trigger serious pause:

Undisclosed litigation with material exposure
Key contracts with change-of-control termination rights
IP owned by founders personally rather than the company
Material tax liabilities or ongoing audits
Employee misclassification at scale
Missing or forged corporate records

Streamline Your Due Diligence Process

Legal due diligence generates massive volumes of notes, memos, and document summaries. Tools like Whisperit help legal teams dictate their findings in real time, generate structured reports, and keep the entire team aligned. When you are deep in a data room reviewing hundreds of documents, having AI-powered dictation means you capture every detail without slowing down.

Start streamlining your legal document workflow today.

Legal Due Diligence Checklist: 35 Essential Items for M&A and Corporate Transactions