Commercial Due Diligence: What to Check Before You Sign

Most of the commercial disputes that reach us do not begin with a bad clause. They begin with a question nobody asked before the documents were signed.

Due diligence is not a formality that sits between the term sheet and completion. It is the exercise that tells you what you are actually buying, and what you will be left holding if the assumptions in the term sheet turn out to be wrong.

Start with the entity, not the asset

Before reviewing a single contract, establish that the counterparty exists, is properly constituted, and has the capacity to do what it is promising. Confirm the corporate filings, the current board, and the authority behind the signature you are relying on. A well-drafted agreement signed by someone without authority is an expensive document.

Read the contracts that carry the value

For a share purchase, the value usually sits in a handful of arrangements: the major customer contracts, the supply agreements, the lease, the financing documents, and anything that restricts the company from doing business after completion. Read them for change-of-control clauses, exclusivity, termination rights and consent requirements.

Look for what is not in the data room

An incomplete data room is itself a finding. Ask what is missing and why. Litigation, regulatory correspondence, unpaid tax assessments and employee claims are the categories most often left out, and they are the categories most likely to cost money after closing.

Map the risk onto the agreement

Due diligence findings belong in the transaction documents. If the target is in the middle of a dispute, that should appear as a specific indemnity, a disclosure, or a price adjustment, not as a note in a report nobody revisits. Where a consent is required, make completion conditional on it.

A short checklist

• Corporate existence, ownership and signing authority
• Material contracts and change-of-control provisions
• Litigation, regulatory and tax exposure
• Property and title, including leases and perfection of security
• Employment obligations, pensions and gratuities
• Intellectual property ownership and registration
• Anything the seller declined to disclose, and the reason given

The purpose of all of this is not to make a transaction slower. It is to make sure that when you sign, the price you are paying matches the risk you are taking.

This note is general information and not legal advice on any particular transaction.