Share purchase due diligence checklist

Corporate records

• Minute book. Complete and up to date — incorporation, bylaws, director and shareholder resolutions, registers.
• Share ownership (cap table). Exactly who owns what, with no missing share certificates, options, or old promises floating around.
• Prior reorganizations. Any past restructurings, rollovers, or share issuances done properly and documented.

Financial and tax

• Financial statements. Several years of statements, ideally accountant-prepared, that reconcile to tax filings.
• Tax filings and exposure. Corporate tax, HST, payroll remittances all filed and paid; any reassessments or disputes flagged.
• Debt and guarantees. Every loan, line of credit, and guarantee the company is on the hook for.
• Surplus assets. Cash or investments in the company that affect valuation and the lifetime capital gains exemption.

Contracts and operations

• Material contracts. Key customer, supplier, lease, and financing agreements — and any change-of-control clauses that trigger on a sale.
• Customer and supplier concentration. Reliance on a few relationships, and how durable they are.
• Insurance. Coverage in place and adequate, with no gaps or lapses.

People and IP

• Employees and contractors. Agreements, entitlements, misclassified contractors, and key-person risk.
• Benefit and pension obligations. Any plans and the liabilities that come with them.
• Intellectual property. Ownership of IP confirmed, including anything created by employees or contractors.

Liabilities and risk

• Litigation. Current, threatened, or historical claims against the company.
• Regulatory and environmental. Compliance history and any outstanding orders or investigations.
• Reps, warranties, indemnities. What the seller stands behind, with a holdback or escrow to back it up.
• Non-competition. The seller agreeing not to turn around and compete against the business you just bought.