What this covers: Comprehensive legal due diligence checklist for M&A transactions organised by area, Corporate, IP, Employment, Regulatory, Litigation, Contracts, and Finance/Tax. Each item specifies the document or information required and the risk it addresses.
| # | Document / Information | Risk addressed |
|---|---|---|
| A1 | Certificate of Incorporation; MoA and AoA (latest versions including all amendments) | Confirms legal existence; objects clause may restrict business scope |
| A2 | Shareholding structure, current cap table with all classes of shares | Confirms who owns what; whether representations are accurate |
| A3 | All historical share allotment/transfer documents (Form PAS-3, SH-4) with MCA evidence of filing | Verifies validity of every share issuance and transfer; unauthorized allotments expose target to challenge |
| A4 | All shareholders’ agreements and investment agreements | Reveals: tag-along, drag-along, ROFR, anti-dilution rights that may affect the acquisition |
| A5 | ESOP scheme and all grant letters; vesting status of all outstanding options | Fully diluted cap table calculation; unvested options as contingent dilution |
| A6 | All convertible instruments (CCDs, CCPS, convertible notes), terms, conversion price | Full dilution impact on buyer’s ownership post-acquisition |
| A7 | Board and shareholder meeting minutes for past 3 years | Identifies: approved resolutions and whether they were properly passed; contingent liabilities discussed |
| A8 | Annual returns (MGT-7) and financial statements (AOC-4) filed with ROC for past 5 years | Confirms MCA filing compliance; material inconsistencies with financial statements |
| A9 | Any buy-back of shares and redemption of preference shares, documents and ROC filings | Validity of capital reduction; potential legal challenges to earlier buy-backs |
| A10 | List of all subsidiaries, associates, and holding companies | Full group structure; hidden liabilities in subsidiaries; regulated entities |
| A11 | All existing charges and encumbrances registered with ROC (Form CHG-1 filings) | All security interests given by target to lenders |
| A12 | Change of name (if any), MCA records; old and new name documentation | Continuity of contractual rights and registrations post-name change |
| A13 | Joint venture agreements and partnership deeds (if any) | Rights and obligations affecting the business |
| A14 | Registered office and business address documentation; all branch registrations | Operational infrastructure; regulatory registrations linked to address |
| A15 | Director details (DIN, qualification, disqualification status, check MCA portal) | Whether any director is disqualified; DIN active status |
| A16 | Corporate governance, company secretary appointment; compliance certificates | Evidence of ongoing governance compliance |
| A17 | Related party transactions, register of contracts under Section 189 Companies Act | Conflicts of interest; transactions potentially at non-arm’s length prices |
| A18 | Any court orders, decrees, or injunctions against the company | Restrictions on business activities; legal exposure |
| A19 | Any pending MCA/ROC notices or show-cause notices | Regulatory non-compliance; potential penalties |
| A20 | Insolvency search, IBBI registry; NCLT records for any CIRP or winding-up filing | Any pending or historical insolvency proceedings |
B. Intellectual Property (10 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| B1 | Trademark registrations and applications (Indian and international); trademark search report | Does the target own its brand? Any infringement risk? |
| B2 | Patent grants and applications (Indian and international) | Scope of IP protection; patent expiry timeline |
| B3 | Copyright registrations (if any); copyright ownership documentation | Ownership of content, software, databases |
| B4 | IP assignment agreements from all founders (covering pre-incorporation work) | Whether IP originated by founders is validly owned by the company |
| B5 | IP assignment clauses in all employee agreements | Whether employee-created IP belongs to the company |
| B6 | IP assignment provisions in all contractor agreements | Whether third-party-created IP is assigned to the company |
| B7 | Open source software audit, list of open source components used in the product; licence types | Copyleft contamination risk; GPL/LGPL/AGPL licence obligations |
| B8 | IP licences granted by or to the target (in-licences and out-licences) | Restrictions on IP use; exclusivity obligations; licences that survive change of control |
| B9 | IP infringement claims, any cease and desist letters received; any claims made against third parties | Pending IP disputes; freedom to operate issues |
| B10 | Domain names, social media accounts, and handles, registered in company’s name | Completeness of IP portfolio |
C. Employment (10 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| C1 | List of all employees with designation, CTC, and joining date | Headcount; salary liability; seniority-based statutory obligations |
| C2 | Employment agreements for all senior management and key employees | Non-compete / non-solicitation provisions; post-acquisition restrictions |
| C3 | PF and ESIC compliance, registration certificates; 3-year contribution statements; any notices | Outstanding PF/ESIC dues are a statutory liability of the employer |
| C4 | Gratuity provisions, is gratuity funded (through LIC group gratuity scheme or trust)? | Unfunded gratuity is a contingent liability; employees with 5+ years service can claim |
| C5 | POSH compliance, ICC constitution; POSH policy document; any pending complaints | Pending complaints carry financial liability; non-compliance with POSH Act creates penalty exposure |
| C6 | Labour contractor compliance, all contract workers and third-party staff, Contract Labour Act | Outstanding dues to contract workers; compliance with CLRA; regularization demands |
| C7 | Ex-employee claims, any pending labour court cases, industrial disputes | Contingent liability for termination claims |
| C8 | Bonus Act compliance, statutory bonus declarations; Profit Sharing Act | Outstanding bonus dues |
| C9 | Change of control provisions in employment agreements | Any “golden parachute” clauses triggered by acquisition; mass resignation risk |
| C10 | Trade union status, is there a recognised trade union? Any collective bargaining agreement? | Labour relations risk post-acquisition; CBA obligations binding on buyer |
D. Regulatory Compliance (10 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| D1 | All sector-specific licences and registration certificates (with expiry dates) | Are all required licences in place and current? |
| D2 | GST registration certificate; 3 years’ GST returns; pending notices or assessments | Outstanding GST dues; assessment disputes |
| D3 | Income tax returns for 5 years; outstanding assessments and demands | Tax exposure; disputes with income tax department |
| D4 | TDS compliance, TDS returns filed; any default notices from Income Tax Department | TDS liability for acquirer if target has not deducted and deposited TDS |
| D5 | FEMA compliance, all FC-GPR filings for foreign investment; any compounding proceedings | FEMA violations by target create regulatory risk |
| D6 | Environmental compliance certificates (if applicable) | Environmental liabilities that survive acquisition |
| D7 | SEBI compliance (if target is listed or has securities listed) | Compliance with SEBI LODR regulations; insider trading policy |
| D8 | Competition Act compliance, any pending CCI proceedings or investigations | CCI approval may be required for the acquisition (if thresholds are met) |
| D9 | Consumer protection complaints, pending consumer forum cases | Volume of consumer complaints; quality/product liability risk |
| D10 | DPIIT recognition status (startups) | Angel tax implications on share transfers |
E. Litigation (8 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| E1 | List of all pending civil, criminal, and regulatory cases | Financial exposure; regulatory risk |
| E2 | Court portal search, eCourts; High Court portals for cases against company and founders | Undisclosed litigation |
| E3 | All legal notices received and not responded to | Pending disputes not yet in litigation |
| E4 | All arbitration proceedings (ongoing and completed) | Financial exposure; arbitral awards that have not been satisfied |
| E5 | Any criminal proceedings against directors or key officers | Personal liability risk; potential disqualification |
| E6 | Any orders of government authorities (penalty orders, show-cause outcomes) | Regulatory penalties; compliance history |
| E7 | Lien certificates / no-dues certificates from all material third parties | Outstanding claims that could become liabilities post-acquisition |
| E8 | Contingent liabilities disclosed in audited financial statements | Cross-reference litigation list with financial statement disclosures |
F. Material Contracts (10 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| F1 | All customer contracts (top 10 by revenue, plus all contracts with change of control clauses) | Revenue continuity post-acquisition; consent requirements |
| F2 | All supplier and vendor contracts | Supply chain continuity; minimum purchase obligations; exclusivity |
| F3 | All lease agreements (commercial premises) | Lock-in periods; security deposits; break clause terms |
| F4 | All loan and credit facility agreements | Repayment obligations; change of control clauses in loan agreements (accelerate debt on COC) |
| F5 | Technology licences (in and out) | IP freedom to operate; licence termination on change of control |
| F6 | Distribution and reseller agreements | Revenue commitments; territorial restrictions; exclusivity obligations |
| F7 | Joint venture and collaboration agreements | Rights of JV partner triggered by acquisition |
| F8 | Non-disclosure agreements with third parties | Confidentiality obligations that limit the buyer’s use of information |
| F9 | Exclusivity agreements with any customer or supplier | Commercial restrictions post-acquisition |
| F10 | Insurance policies, D&O, product liability, cybersecurity | Coverage continuation post-acquisition; claims history |
G. Finance and Tax (10 Items)
| # | Document / Information | Risk addressed |
|---|---|---|
| G1 | Audited financial statements for 5 years; management accounts for last 12 months | Financial baseline; revenue trends |
| G2 | All loan agreements and term sheets, outstanding principal, interest, repayment schedule | Debt being assumed or repaid on acquisition |
| G3 | Working capital position, accounts receivable ageing; accounts payable; cash position | Normalized working capital for price adjustment mechanics |
| G4 | Tax assessment orders (IT, GST, Customs) and pending appeals | Contingent tax liability |
| G5 | Transfer pricing documentation (if related party transactions exist) | Transfer pricing risk |
| G6 | Deferred revenue and earnout obligations | Future revenue obligations and earnout triggers |
| G7 | MAT credit entitlement, is there a significant MAT credit carry-forward? | Tax benefit that accrues to buyer if target is acquired on stock purchase basis |
| G8 | Capital gains tax calculation for sellers | Acquisition structure (stock vs. asset purchase) affects sellers’ CGT liability |
| G9 | Any tax-related representations given to investors in prior rounds | Prior tax warranties that may conflict with current position |
| G10 | Stamp duty implications of the acquisition structure | Stamp duty on share transfer or asset purchase, varies by state |
This resource is for general information purposes only and does not constitute legal advice. For advice on your specific situation, seek appropriate professional counsel.
| **Corpus Lawyers | 148 Lawyers Chambers, Saket Court Complex, New Delhi 110016 | mail@corpuslawyers.in** |