30 Questions to Ask When Buying a Business (M&A-Lawyer Approved)

When purchasing a business, it is essential to conduct legal due diligence as a critical component of the acquisition process. Conducting thorough due diligence allows buyers to identify potential risks and liabilities that could affect the value and future performance of the business. Lawyers play a key role in the process, investigating the legal aspects of the target business and providing insights that will guide the buyer’s decision-making.

In this blog, I will outline the core legal areas to focus on during the due diligence process and provide examples of the key questions to ask the seller in each area. The questions help uncover potential red flags and ensure the buyer is fully informed before proceeding with the deal.

These are the kinds of questions that I (Malcolm Zoppi), as an M&A lawyer, would ask the seller of the business when representing the buyer.

The Legal Due Diligence Process

Legal due diligence typically involves a comprehensive examination of the target company’s legal documents, contracts, and compliance status. In smaller transactions, lawyers work closely with accountants and other professionals, each handling their respective areas of the diligence review. Diligence teams play a crucial role in conducting effective due diligence, ensuring that all critical steps are covered. In larger deals, the due diligence process may also include experts from marketing, operations, and other business areas, all contributing to the overall diligence report. The diligence report summarises findings and helps the buyer make informed decisions.

To streamline the legal due diligence process, buyers often use a legal due diligence checklist. This checklist guides the review by outlining the key areas to investigate. A legal due diligence questionnaire is then sent to the seller’s solicitors to gather necessary information. Below, we explore the common areas of law that buyers should focus on, along with example questions to ask the seller.

Key Legal Areas and Due Diligence Questions

1. Corporate Compliance

Corporate compliance refers to the business’s adherence to the rules and regulations that govern its operations. Ensuring that the target company is in compliance with corporate laws is crucial to avoid legal pitfalls. It is essential to conduct legal due diligence to verify compliance and address any potential issues.

Questions to ask:

1.1. Are there any shareholders’ agreements in place?

1.2. Does the company have bespoke articles of association?

1.3. Were recent corporate transactions conducted in compliance with the Companies Act?

2. Contracts with Clients

Client contracts are a vital part of any business, as they outline the terms under which the company operates with its customers. Diligence legal is crucial in this context, as it involves a thorough examination of these contracts to assess risks and liabilities, ensuring that both buyers and sellers are informed before finalising a deal. Reviewing these contracts helps the buyer assess the stability and value of the company’s revenue streams.

Questions to ask:

2.1. What are the standard terms used in client contracts?

2.2. Who are the major clients of the business?

2.3. When do contracts with major clients expire?

3. Contracts with Suppliers

Supplier contracts are equally important as they affect the business’s supply chain and operations. Conducting a thorough due diligence review of these contracts is essential to analyse potential risks, and compile findings into actionable reports. Understanding the terms and expiration dates of these contracts can provide insight into future risks.

Questions to ask:

3.1. What are the standard terms used in supplier contracts?

3.2. Who are the major suppliers to the business?

3.3. When do contracts with major suppliers end?

4. Data Protection Compliance

With increasing regulations around data protection, it’s essential to ensure that the due diligence task includes verifying that the target business complies with data protection laws such as GDPR. Non-compliance could lead to significant fines and legal liabilities.

Questions to ask:

4.1. What data protection policies does the business have in place?

4.2. What measures have been taken to ensure compliance with data protection regulations?

4.3. Has the company experienced any data breaches in the past?

5. Employment Law Compliance

Collaborating with a law firm is essential for a thorough review of employment law compliance to identify potential risks related to the company’s workforce. This includes examining employment contracts, benefits, and any ongoing or past employee disputes.

Questions to ask:

5.1. What are the standard terms of employment contracts?

5.2. Has the business faced any employment issues or disputes in the past?

5.3. Are there any employees on long-term sickness leave?

6. Real Estate

If the target business owns or leases property, it’s important for legal teams to review the details of these arrangements. This includes checking whether the property titles are free of issues, and whether any leases will continue post-acquisition.

Questions to ask:

6.1. What properties are owned by the business? Are they freeholds or leaseholds?

6.2. What are the title details for each property?

6.3. Does the business lease any premises? Will the lease continue after the acquisition?

7. Loans and Financing

Understanding the company’s financial obligations is a crucial aspect of diligence legal in due diligence. Buyers should inquire about any outstanding loans, the assets securing these loans, and whether there will be any conflicts with the buyer’s financing arrangements.

Questions to ask: