Legal due diligence is one of the most critical phases of any merger or acquisition. For Arizona M&A transactions, due diligence allows buyers to confirm the value of the target company, identify legal risks, and avoid inheriting hidden liabilities. Below is a legal due diligence checklist to support a smoother closing process.
1. Corporate Structure and Governance
The due diligence process includes a review of the target company’s corporate formation and governance documents. This step confirms that the business is properly organized and authorized to enter into the transaction.
Key documents include:
- Articles of incorporation or organization or other charter documents
- Bylaws or operating agreements
- Shareholder or member agreements
- Board and shareholder meeting minutes
- Capitalization tables and ownership records, including any vesting schedules and other details
- Evidence of foreign qualification in other jurisdictions
Buyers closely examine whether ownership interests are clearly documented and whether all required corporate approvals have been obtained.
2. Material Contracts
A comprehensive review of material contracts is essential to understanding the company’s obligations and risks. Often times, the portion of diligence devoted to reviewing material contracts is the most substantial diligence effort. It requires the seller to find, organize, and share all current and many expired or terminated agreements. This includes agreements that are critical to operations or revenue.
Common contracts reviewed include:
- Customer and supplier agreements
- Technology licenses and SaaS agreements
- Employment, consulting, and independent contractor agreements
- Leases for real property and equipment
- Loan agreements and security instruments
- All contracts related to ownership, including original founder equity agreements, investor agreements, incentive equity awards (such as stock options), and all securities law compliance items
- Standard form agreements used by the seller
- Service agreements and all statements of work, purchase orders, or invoices under those agreements
Special attention is given to assignment clauses, consent requirements, termination rights, and change-of-control provisions that may be triggered by the transaction.
3. Intellectual Property and Technology Assets
For technology-driven businesses, intellectual property is often the most valuable asset. Legal due diligence focuses on confirming ownership and identifying infringement or licensing risks.
This review typically includes:
- Patents, trademarks, copyrights, and trade secrets
- IP assignment agreements with employees and contractors
- Software licenses and open-source usage
- Data protection and cybersecurity policies
- Inventions assignment agreements executed by all relevant service providers
In Arizona M&A transactions, gaps in IP ownership or undocumented assignments can significantly affect valuation or delay closing.
4. Employment and Labor Matters
Buyers must understand the company’s employment relationships and potential liabilities. Legal due diligence examines compliance with employment laws and the structure of the workforce. Key areas include:
- Employment agreements and offer letters
- Non-compete, non-solicitation, and confidentiality agreements
- Employee handbooks and workplace policies
- Wage and hour compliance
- Benefit plans and retirement programs
Misclassification of employees or unresolved employment disputes can create substantial post-closing exposure.
5. Litigation and Regulatory Compliance
Another critical component of legal due diligence is identifying existing or potential disputes. Buyers review:
- Pending or threatened litigation
- Government investigations or audits
- Regulatory compliance with state and federal laws
- Settlement agreements and consent decrees
Arizona businesses in regulated industries, such as healthcare, financial services, or energy, often require additional regulatory scrutiny.
6. Real Estate and Assets
If the target company owns or leases real property, due diligence includes reviewing title, zoning, and environmental matters. The goal being to confirm that assets can be transferred without unexpected restrictions or liabilities.
7. Insurance Coverage
Insurance policies are reviewed to assess coverage for potential risks. Buyers examine general liability, professional liability, cyber insurance, and directors and officers coverage to determine whether existing policies will remain effective post-closing.
8. Financial Matters
The buyer also will require recent tax returns, company valuations, financial statements, and other financial data.
How a Phoenix M&A Attorney Can Help
Legal due diligence requires careful coordination, experience, and attention to detail. A Phoenix mergers and acquisitions attorney can help by:
- Managing the due diligence process and document requests.
- Identifying legal risks that may affect valuation or deal structure.
- Advising on representations, warranties, and indemnification provisions.
- Coordinating with tax, financial, and regulatory advisors.
- Resolving issues before closing to avoid post-transaction disputes.
An experienced attorney helps ensure that buyers understand what they are acquiring and that sellers are prepared for scrutiny, reducing the risk of surprises after closing.
Contact Us
If you are preparing for a merger or acquisition, contact our Phoenix M&A attorneys today. At Weiss Brown, we help Arizona businesses conduct thorough legal due diligence and complete transactions with clarity and confidence. Call (480) 327-6650 or message Weiss Brown online today.
