OK, let’s breakdown the Due Diligence checklist into broad areas - let’s start with Organizational and Founder’s matters… The caveat here, I’m not a lawyer; I’ve just spent a lot of money on lawyers over the years.
Let’s face it, most of us as founders have our lawyer’s file Articles and Bylaws when we incorporate and we rarely look at them again (until it’s time to consider a deal) then the rush is on to understand several outstanding items:
- Timelines for notifications - how and when you need to notify shareholders for approvals are outlined in your Corporate documents.
- Annual Shareholder meetings - if you haven’t been doing Annual Shareholder Meetings, you should get them on the calendar. This includes an annual shareholder update and financials.
- Qualified Small Business Stock (QSBS) provides that you as the founder and investors (not noteholders before conversion)
Is your stock a Qualified Small Business Stock? It depends on when and where you incorporated as well as how long ago you incorporated it. Given the tax advantage, it’s worth knowing in advance.