Due Diligence Checklist for M&A and Investment — Legal, Financial and Tax Review

Due diligence (DD) is the comprehensive investigation of a company before an investment, acquisition or merger. It is designed to verify representations made by the target company and uncover hidden risks that could affect the deal price or decision. In India, due diligence typically spans four workstreams: Legal, Financial, Tax, and Commercial/Operational. Here is the complete checklist.

Legal Due Diligence

• Corporate: MOA/AOA review, shareholding structure (cap table), share certificates, all ESOP grants, shareholder agreements, voting rights, drag/tag-along rights
• Regulatory: Company registration certificates, all licences (FSSAI, GSTIN, trade licences, PF/ESI registrations), DPIIT startup recognition
• Contracts: Key customer and vendor agreements, change of control clauses, exclusivity provisions, non-compete clauses
• Intellectual Property: Trademark registrations, patent status, domain registrations, copyright ownership, IP assignment agreements
• Employment: Key employee agreements, ESOP documentation, HR policies, pending employment disputes
• Litigation: All pending cases (civil, criminal, regulatory), labour disputes, consumer complaints, regulatory show-cause notices
• Property: Lease agreements, property ownership/title, encumbrances

Financial Due Diligence

• 3-5 years audited financial statements (P&L, Balance Sheet, Cash Flow)
• Revenue quality: recurring vs one-time, customer concentration, payment terms
• Working capital analysis: debtor days, creditor days, inventory turns
• EBITDA adjustments: normalized EBITDA after removing one-time items, related-party transactions
• Debt schedule: all borrowings, loan covenants, contingent liabilities
• MIS reports, management accounts, cash flow forecasts

Tax Due Diligence

• Income tax returns and assessment orders for last 6 years
• GST returns (GSTR-1, GSTR-3B), ITC reversal issues, pending scrutiny
• TDS compliance: Form 26Q, 24Q, 27Q returns and outstanding demands
• Transfer pricing documentation (for related-party transactions above prescribed limits)
• Advance pricing agreements, any tax holidays/exemptions availed

Operational Due Diligence

• Business model, revenue streams and unit economics
• Key customer and supplier relationships, concentration risk
• Management team background and key person dependency
• Technology stack, cybersecurity posture, data privacy compliance
• Competitive landscape and market position

Conclusion

Thorough due diligence protects buyers and investors from inheriting undisclosed liabilities and regulatory risks. SPOTON provides financial and tax due diligence services for investments and M&A transactions across India. Contact us for expert deal advisory and due diligence services.