Draft Acquisition Due Diligence

Skill: Draft Acquisition Due Diligence Memo

1. Subject-matter triage (only if applicable)

• Treat the task as a diligence memo, not a deal summary: the work product must identify issues, explain why they matter legally and transactionally, and recommend a closing path for each material item.
• If the source set contains multiple entities, jurisdictions, contract groups, or IP owners, enumerate them before analysis and assess each on its own facts; do not collapse distinct risks into a single generic pass.
• Start by separating issues that appear to require pre-closing cure from issues that can be handled by disclosure, covenants, special indemnities, escrow, consent planning, or post-closing cleanup.

2. Failure modes the skill is correcting

• Summarizing diligence findings at a high level without connecting each finding to its legal significance and a deal-protection or remediation step.
• Missing the chain between an IP ownership gap, the affected asset, and any related infringement, indemnity, or enforceability exposure.
• Treating corporate minutes or approvals as facially valid without checking quorum, authorization, and consistency with governing documents.
• Overlooking license consent or anti-assignment issues in a stock acquisition where a change-of-control clause can still be triggered.
• Failing to map employees, contractors, offices, and sales activity to tax registration and collection footprints.
• Identifying issues without ranking severity or without distinguishing between closing blockers and issues manageable by contractual protection.
• Describing a legal conclusion without naming the governing rule, statute, regulation, or doctrine that supports it.

3. Legal frameworks / domain conventions that apply

• Corporate organization: compare authorized equity, issued equity, stock ledger, and designation or approval records; if an issued class lacks the required designation support under the governing organizational documents, flag the discrepancy and verify capitalization records.
• Corporate governance: board actions generally require quorum and valid authorization under the bylaws or equivalent governing instrument; if minutes reflect action without quorum, treat the action as potentially voidable and identify material actions affected.
• IP ownership chain: development by founders, employees, or contractors may remain unassigned absent a timely invention or assignment agreement; trace any gap to the specific pending or issued assets it affects and assess whether confirmatory assignment or other cure is needed.
• Indemnification exposure: customer or vendor contracts may contain uncapped or broad IP indemnities; if disputes, claims, or threatened actions touch the covered technology, assess activation risk and whether the exposure can be bounded.
• Inbound licenses and technology agreements: anti-assignment and change-of-control restrictions can require consent even in a stock deal; identify any consent condition tied to a critical license and whether the clause is triggered by the contemplated transaction.
• Sales and use tax nexus: employees, contractors, offices, inventory, or significant sales activity can create physical or economic nexus under applicable state law; compare nexus footprint to registration and collection history to identify uncollected tax, penalties, and interest exposure.
• Employment classification: long-term contractors may be misclassified under applicable worker-classification tests; evaluate exposure to wage, benefit, withholding, and employment-law claims where the facts suggest employee status.
• Use the controlling authority that governs each proposition in the applicable jurisdiction or governing document framework, and cite that authority by name and section, rule, or doctrine in the memo where the conclusion is made.

4. Analytical scaffolds

• For each category, use a finding / significance / severity / recommended action structure:
  • Finding: state the fact pattern from the data room.
  • Legal significance: identify the governing rule and explain the consequence.
  • Severity: apply a uniform ordinal scale across the memo.
  • Recommended action: specify the cure, protection, or follow-up.
• Tie each issue to a concrete source-set anchor such as a governing document, cap table entry, board action, contract clause, tax filing, registration record, or employee roster.
• Where the issue depends on scale, use the relevant transaction or operational metric from the source materials to gauge materiality, then explain the downstream consequence for the deal.
• When a finding interacts with another document, cross-reference the interaction explicitly; for example, connect an IP indemnity to a pending claim, or a change-of-control clause to the acquisition structure.
• Distinguish between issues that require:
  • pre-closing remediation,
  • closing conditions or consent delivery,
  • SPA representations, covenants, indemnities, or escrow,
  • and post-closing cleanup.
• If the source set does not support a category, say so affirmatively and explain the limits of the review rather than implying a negative conclusion.
• Where the source documents use defined terms or internal labels for an authority, filing, or agreement, preserve those labels in the memo and cite them consistently.

5. Vertical / structural / temporal relationships (only if applicable)

• Trace corporate and IP chains over time: formation, equity issuances, governance actions, development activity, assignment execution, contract execution, dispute onset, and transaction signing should be sequenced to test whether rights were validly created and transferred.
• For board and stockholder actions, compare meeting dates, attendance, quorum, and approval chronology against the governing documents and any later ratification.
• For IP and contract issues, identify whether the relevant obligation or restriction arose before or after the development, execution, or change-of-control trigger.
• For tax issues, map personnel and sales presence by jurisdiction and period, then compare that timeline to registration and collection history.
• For employment issues, assess the duration and continuity of contractor engagement against the services performed and the classification standard in force during the relevant period.

6. Output structure conventions

• Draft a formal due diligence memorandum in industry-conventional form, with a concise executive summary followed by category-based analysis and a prioritized issues section.
• Define the severity scale once and apply it uniformly to every issue entry.
• For each issue, include:
  • the relevant source fact pattern,
  • the governing legal or contractual rule with authority,
  • the consequence for the acquisition,
  • and a concrete recommendation.
• Group issues by category rather than by document type, but preserve enough cross-referencing for the reader to trace each conclusion back to the source set.
• Distinguish clearly between:
  • items that likely require pre-closing cure or consent,
  • items that can be addressed through representations, covenants, indemnities, or special escrows,
  • and items that are informational or monitorable.
• End with an explicit Recommended Actions section that assigns each action to a responsible role and ties it to a transaction milestone or relative urgency.
• If the template supplied in the source materials uses a particular memo style, mirror its tone and sequencing without copying its exact section list verbatim.
• Keep the memo substantive and decision-oriented; avoid unsupported conclusory statements, and avoid inventorying facts without tying them to deal impact.