What to Include in Your Due Diligence Checklist (With Template)

Due diligence is crucial for making informed business decisions, whether evaluating a merger, investment, or partnership. It helps uncover risks, validate opportunities, and ensure stakeholders are fully prepared for a business transaction.

A well-structured due diligence documents checklist ensures a systematic evaluation, covering key areas that could make or break a deal. This article provides an actionable blueprint, including:

• Core components of a bulletproof checklist (financials, legal, tax, IP, and more).
• A customizable template to streamline evaluations.
• Industry-specific adaptations (startups, real estate, tech, and beyond).
• Tools like virtual data rooms (VDRs) to enhance security and collaboration.

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Why a target company due diligence checklist matters

A structured checklist is a roadmap for the merger or acquisition process, guiding stakeholders through complex evaluations. Without one, a due diligence team risks inefficiency, errors, and costly liabilities.

Key benefits of a due diligence checklist include:

• Efficiency. Streamlines document collection, reducing redundant requests and delays.
• Comprehensive coverage. Ensures critical areas like compliance, IP, and financial health are never overlooked.
• Accountability. Fosters clear progress tracking.

Skipping a detailed, checklist-backed due diligence evaluation typically invites chaos. For example, Elon Musk’s $44B Twitter acquisition allegedly skipped the due diligence process, with hasty decisions sparking executive chaos, advertiser exits, and a revenue plunge.

We knew that Musk didn’t conduct due diligence before offering to buy Twitter, and that he hadn’t thought too deeply about thorny content moderation issues.

Dan Primack, a business editor at Axios

Core components of a due diligence checklist

Below, we break down the non-negotiable components every M&A or investment checklist must include.

Company information and corporate structure

This section ensures clarity on organizational documents, ownership hierarchies, decision-making authority, and structural vulnerabilities that could impact deal viability.

Examine:

• Articles of incorporation. Confirm legal formation, business purpose, and jurisdiction.
• Organizational charts. Map leadership roles, decision-making hierarchies, and subsidiary relationships.
• Shareholder and partnership agreements. Review ownership splits, voting rights, and exit clauses.
• Board minutes, resolutions, and other organizational documents. Assess historical decisions impacting strategy, mergers, or disputes.
• Subsidiary structure. Identify subsidiaries, joint ventures, or affiliates.
• Pending structural changes. Note upcoming mergers, acquisitions, or reorganizations.

Ambiguities in company documents can mask control issues, undisclosed stakeholders, or regulatory noncompliance, jeopardizing post-deal integration.

Financial statements and reports

The financial due diligence process validates a company’s financial performance, uncovering risks like inflated valuations, unsustainable cash flows, or undisclosed financial obligations. A robust financial audit paired with a rigorous analysis ensures accurate revenue validation and safeguards against post-transaction surprises.

Examine:

• Audited financial statements (3–5 years). Income statements, balance sheets, cash flow statements, and financial statements in annual reports.
• Debt schedules. Outstanding loans, interest rates, covenants, and repayment timelines.
• Revenue streams. Breakdown by product, region, or client (like reliance on the top five customers).
• Budget vs. actuals. Gaps that indicate forecasting inaccuracies or operational inefficiencies.
• Contingent liabilities. Guarantees, warranties, or pending lawsuits impacting finances.
• Internal controls. Fraud prevention, audit trails, and accounting software integrity.

🔎 Additional reading: Explore our customizable commercial due diligence checklist for enhanced business evaluations.

Legal documentation

A legal review identifies liabilities that could derail a transaction, from unresolved litigation to unenforceable contracts.

Examine:

• Pending and past litigation. Lawsuits, regulatory investigations, or settlements.
• Contracts. Customer/vendor agreements, leases, loans, and NDAs (expiry dates, auto-renewals).
• Regulatory filings. Compliance with industry-specific laws (like GDPR, SEC, EPA).
• Employee agreements. Non-competes, severance terms, and union contracts.
• Licenses and permits. Active operational licenses (industry-specific or regional).
• Real estate deeds and leases. Ownership disputes, zoning compliance, or environmental liens.
• Compliance policies. Anti-bribery, data privacy, workplace safety, and other relevant regulations.

Tax compliance

Tax due diligence safeguards against aggressive accounting practices or mismanaged financial records and filings that could destabilize a deal.

Examine:

• Tax records. 3–5 years of filing for income, sales, and payroll taxes.
• Tax audits. Open or past disputes with tax authorities.
• Transfer pricing. Cross-border transactions between subsidiaries.
• Tax incentives. Verify eligibility and adherence to terms (like research and development (R&D) credits).
• Unpaid liabilities. Penalties, back taxes, or interest owed.
• Sales tax nexus. Compliance in states/countries where the company operates.
• Deferred taxes. Temporary vs. permanent differences impacting future liabilities.

Intellectual property

The intellectual property (IP) diligence process evaluates the ownership, value, and risks tied to patents, trademarks, and proprietary assets. This step ensures that IP aligns with business goals and isn’t encumbered by disputes or licensing gaps.

Examine:

• Patent and trademark registrations. Confirm validity, geographic coverage, and expiration dates.
• Infringement claims. Active or past litigation involving IP theft or unauthorized use.
• Licensing agreements. Terms for third-party use, royalty structures, and exclusivity clauses.
• Trade secrets. Protection mechanisms (such as NDAs and employee access controls).
• Domain names. Ownership details and renewal schedules.
• Open-source software. Compliance with licensing terms in codebases.
• IP valuation reports. Appraisals for mergers, acquisitions, or collateral.

Employee and Benefits Info

Employee due diligence assesses workforce stability, compliance with labor laws, and potential liabilities tied to benefits or disputes. This ensures smooth transitions and avoids unexpected costs.

Examine:

• Headcount data. Full-time, part-time, and contractor roles (including turnover rates).
• Compensation plans. Salaries, bonuses, equity grants, and severance policies.
• Benefits programs. Health insurance, retirement plans (such as 401(k) obligations), and pensions.
• Labor disputes. Pending grievances, union negotiations, or workplace safety violations.
• Employee handbooks. Policies on harassment, remote work, and disciplinary actions.
• Stock options. Vesting schedules and dilution risks.

IT Infrastructure and data security

A thorough IT system review identifies vulnerabilities in systems, data governance, and cybersecurity that could disrupt operations or expose sensitive data.

Examine:

• System architecture. Cloud vs. on-premise infrastructure, scalability, and uptime metrics.
• Cybersecurity protocols. Firewalls, encryption, penetration testing, and incident response plans.
• Data privacy compliance. GDPR, CCPA, or HIPAA adherence for customer and employee data.
• Software licenses. Validity of enterprise tools and open-source usage.
• Disaster recovery. Backup frequency, redundancy systems, and downtime recovery timelines.
• Third-party vendors. Risk assessments for SaaS providers or data processors.
• Historical breaches. Impact analysis and remediation efforts.

🔎Additional reading: Explore our dedicated operational due diligence checklist for a deeper dive into day-to-day processes.

Contracts and obligations

A contract analysis reviews existing agreements to identify dependencies, auto-renewals, or unfilled obligations that could transfer risk to buyers.

Examine:

• Customer contracts. Payment terms, termination clauses, and exclusivity agreements.
• Vendor SLAs. Performance guarantees, penalties for noncompliance, and renewal terms.
• Leases. Real estate, equipment, or vehicle agreements (duration, escalation clauses).
• Loan covenants. Financial ratios, collateral pledges, and default triggers.
• Strategic partnerships. Profit-sharing terms, exit strategies, and dispute resolution.
• Auto-renewals. Notice periods for canceling subscriptions or services.
• Unfulfilled obligations. Pending deliverables or unpaid milestones.

Environmental and regulatory issues

Environmental due diligence uncovers compliance gaps, contamination risks, or sustainability liabilities that impact operational continuity or reputational equity.

Examine:

• Environmental permits. Air and water emissions, waste disposal, or hazardous material handling.
• Phase I and II Environmental Site Assessment (ESA) reports. Soil and groundwater contamination assessments.
• Regulatory audits. Violations or fines from the U.S. Environmental Protection Agency (EPA), the U.S. Occupational Safety and Health Administration (OSHA), or local agencies.
• Climate risks. Flood zones, energy efficiency, or carbon footprint disclosures.
• Sustainability initiatives. Environmental, social, and governance (ESG) commitments, renewable energy usage, or certifications.
• Product compliance. Safety testing (such as the U.S. Consumer Product Safety Commission (CPSC) for consumer goods.
• Historical site use. Prior industrial activities posing remediation risks.

Due diligence checklist template

Below is a comprehensive, adaptable due diligence checklist organized by category. Use this template as a starting point for the business evaluation and tailor it to your industry, deal type, and risk tolerance.

Industry-specific due diligence checklists

A due diligence requirements checklist may vary significantly across industries, demanding a tailored business audit to address unique risks, regulations, and operational priorities. Below are streamlined frameworks for key sectors with actionable advice for adapting checklists to specific needs.

Startups

A startup due diligence checklist requires a focus on growth potential and hidden risks like equity disarray or unproven business models. Consider that 29% of startups fail due to insufficient funding or cash problems.

Key areas include clarifying cap table ownership and investor rights, assessing cash burn rates against the operational runway, and evaluating the scalability of the minimum viable product (MVP).

Intellectual property ownership must be verified, particularly for contractor-developed assets, while regulatory risks in emerging sectors like artificial intelligence (AI) and cryptocurrency should be preemptively addressed.

For example, fintech startups must prioritize financial licensing (the U.S. Securities and Exchange Commission (SEC) compliance) and cybersecurity audits to avoid legal or operational blowback.

Real estate

Real estate transactions hinge on asset quality and regulatory adherence. Due diligence should verify title deeds for liens or disputes, confirm zoning compliance for intended property use, and review tenant lease stability, including expiration dates and rent roll consistency.

One of the most common causes of title disputes is liens and encumbrances on the property.

Cavell Law

Environmental assessments (Phase I/II ESAs) are critical to uncover contamination risks, while physical inspections of heating, ventilation, and air conditioning (HVAC) systems or structural integrity prevent post-acquisition issues. Commercial properties, for instance, demand additional checks like Americans with Disabilities Act (ADA) accessibility compliance and parking easement validations.

Manufacturing

Manufacturers face risks tied to supply chains, equipment, and regulatory scrutiny. Due diligence should map supply chain dependencies across vendor tiers, equipment maintenance logs, and depreciation schedules.

Ensuring OSHA compliance for workplace safety is also critical. The administration states that machinery workers suffer approximately 18,000 amputations, lacerations, crushing injuries, and abrasions annually.

Tech companies

Due diligence checks in tech firms demand scrutiny of code integrity, scalability, and data governance. Priorities include verifying code ownership and open-source license compliance, assessing uptime reliability against service-level agreements (SLAs), and analyzing customer churn relative to acquisition costs.

Adhering to data privacy regulations (e.g., GDPR, CCPA) and addressing third-party vulnerabilities are equally critical. AI-driven companies should conduct ethics reviews of training data sources to prevent bias and costly privacy violations.

For example, the General Data Protection Regulation (GDPR) penalty framework allows for fines of up to €20 million, or up to 4% of a company’s total global turnover from the preceding fiscal year.

Financial services

Banks, insurers, and fintechs face stringent regulatory risks. For example, Alloy, a leading identity risk management firm, released a report revealing that 60% of surveyed fintechs have paid compliance fines of at least $250,000, with one-third incurring penalties exceeding $500,000.

Due diligence must validate licenses (like the Financial Industry Regulatory Authority (FINRA), audit anti-money laundering (AML) protocols, and identify potential risks like non-performing loans.

Cryptocurrency exchanges, for instance, require rigorous anti-fraud measures and digital wallet security audits to safeguard assets. Capital reserve compliance (such as Basel III) and cybersecurity defenses for transactional systems are also non-negotiable. 

Adapting your checklist: Practical guidance

Use the following approach to build a complete due diligence checklist with all the documents relevant to a particular industry and use case:

Step	What to Do	Why It Matters
1. Understand the deal context	Tailor the checklist based on deal type (M&A vs. venture capital).	M&A deals require integration foresight; investors focus on scalability.
2. Align with stakeholder priorities	Differentiate buyer vs. investor goals (liability vs. growth).	Helps prioritize sections like compliance or revenue scalability.
3. Engage subject-matter experts	Include legal, tax, and sector consultants as well as third-party advisors (like Deloitte and PwC).	Ensures accuracy in specialized areas like environmental or data regulation.
4. Benchmark against industry norms	Compare with similar transactions or industry-specific templates.	Avoids underestimating risk in complex verticals.
5. Evolve continuously	Treat checklists as dynamic documents.	Markets, laws, and business models change rapidly, and your checklist must too.

🔎Additional reading: Check these 60 crucial due diligence questions to ask when buying a business.

How virtual data rooms improve due diligence workflows

Virtual data rooms (VDRs) have revolutionized due diligence by transforming static checklists into dynamic, collaborative tools. These platforms for secure document exchange in merger and acquisition (M&A) transactions streamline complex evaluations, ensuring teams work efficiently while minimizing risks of oversight or data breaches.

Streamlined transaction readiness

VDRs eliminate the chaos of scattered spreadsheets and email chains. Centralized portals allow teams to upload, index, and tag documents in bulk while aligning files directly with checklist categories like financials or legal contracts. Advanced AI features like bulk document redaction, translation, and search drastically reduce manual effort. 

Enhanced collaboration across teams

Due diligence often involves lawyers, accountants, and executives across time zones. VDRs enable real-time collaboration and progress tracking, allowing stakeholders to comment on files and flag discrepancies without exposing sensitive data.

Built-in Q&A modules let advisors resolve queries within the platform, avoiding inbox clutter. Imagine a scenario where a tax consultant in New York and a CFO in London simultaneously validate a lengthy red flag due diligence report, slashing review cycles from weeks to days.

Military-grade security for sensitive data

Checklists often contain proprietary details that are vulnerable to leaks. VDRs protect files with military-level encryption (256-bit keys, ISO 27001), granular access permissions, dynamic watermarks, and two-factor authentication. For instance, during a high-profile acquisition, a VDR can restrict IP documents to specific users, ensuring competitors never access critical patents.

Checklists often contain proprietary details that are vulnerable to leaks. VDRs protect files with military-level encryption (256-bit keys, ISO 27001), granular access permissions, dynamic watermarks, and two-factor authentication. For instance, during a high-profile acquisition, a VDR can restrict IP documents to specific users, ensuring competitors never access critical patents.

Key takeaways

• Checklists prevent costly oversights. Mitigate risks, streamline processes, and ensure no critical area (financial, legal, IP) is overlooked.
• Tailor your checklist to industry needs. Startups, real estate, and SaaS demand unique checks for growth, compliance, and tech risks.
• Leverage a virtual data room: Centralize documents, enhance security, and collaborate in real time.
• Collaborate with experts. Legal, tax, and sector advisors refine checklists for accuracy and compliance.

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