Due Diligence Checklist

Looking at the management and structure is key.  Do not forget to consider the following:

  1. What is the company’s corporate structure? C corp., S corp., LLC or LP? Does this model allow for a liquidity event and or return on investment?
  2. Is there an exit strategy?
  3. Is the corporate structure overly complicated? If so, why, and might it be simplified?
  4. How many existing shareholders? Too numerous, and, if so, why?
  5. Does the corporate structure fit with the business model?
  6. Does the corporate structure allow for growth?
  7. What is the founder share allocation?
  8. Do they have a large enough stake to have the incentive to succeed, but not so large as to ignore board and other advisors?
  9. Is the founders’ stock vested over time?
  10. Who is on the board of directors?
  11. Do they have the right background for the company?
  12. Is there a sufficient number of outside directors?
  13. How are board members compensated?
  14. Does the company have a board of advisors and, if so, who is on the board?
  15. Do the advisors actively participate in the company’s development?
  16. How are advisors compensated?
  17. Has the company been involved in any litigation or been threatened with litigation?
  18. Does the company have all required permits and licenses?

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