Legal Due Diligence Checklist
LLC Legal Due Diligence Checklist
Legal review items a buyer or seller in an LLC transaction should expect to gather. The defining issues are the operating agreement (which governs almost everything), member-level rights and disputes, and change-of-control provisions in material contracts.
Why a LLC-Specific Checklist
- •The LLC operating agreement governs admission, transfer, distribution, voting, and dissolution rules. It is the single most important document in any LLC deal.
- •Member ledgers and capital call histories are often informal and need reconstruction.
- •Change-of-control provisions in customer, supplier, and lease contracts can require third-party consents that delay or kill a deal.
- •Founder IP assignments are commonly missing in small LLCs and can leave the LLC without clear title to its core technology.
The Checklist
Items a buyer or seller in a llc transaction should expect to request, produce, or review.
1. Formation and Organizational Documents
Articles of Organization (or Certificate of Formation)
As filed and as amended, with state-stamped copies.
Operating Agreement and all amendments
Current operating agreement, all prior versions, and all amendments. Confirm execution by all members.
Certificate of good standing from state of formation
Recent certificate (within 30 days) and from any state where qualified to do business.
Foreign qualification filings in each operating state
Any state where the LLC has nexus or operations.
EIN assignment letter
Form CP-575 or equivalent.
DBA / fictitious business name registrations
If LLC operates under any name other than its formal name.
Annual reports and franchise filings
Last 5 years of annual report filings in formation state and qualified states.
2. Membership and Capital
Membership ledger
Current members, percentage interests, capital contributions, and any preferred units.
Capital contribution records
Cash, property, and services contributed by each member, with documentation of value and date.
Capital call history
Notices issued, amounts contributed, and any defaults or remedies invoked.
Promised but unfunded capital commitments
Any subscription agreements where capital has not been called or funded.
Profits interest and incentive unit issuances
Any non-capital interests issued to employees or service providers, with grant agreements and 83(b) elections.
Buy-sell, drag-along, tag-along, and right-of-first-refusal provisions
Specific provisions and any prior triggers or waivers.
Member loans to or from the LLC
Promissory notes, loan agreements, repayment terms, and current balances.
3. Governance and Decisions
Manager-managed or member-managed structure
Identity and authority of managers, board composition if applicable.
Manager and committee meeting minutes
Last 3-5 years of minutes documenting major decisions.
Member written consents in lieu of meetings
Any actions taken by member written consent.
Required member approvals not yet obtained
Any actions taken without required votes or approvals (a common housekeeping issue).
Officer appointments
If the LLC has officers, identity, scope of authority, and any limitations.
4. Material Contracts and Change of Control
Change-of-control provisions in material contracts often require third-party consent before a deal can close. Identifying these is essential.
Top customer contracts (top 10 or top 80% of revenue)
Contracts and any change-of-control, assignment, or termination provisions.
Top supplier and vendor agreements
Same as customers, especially for sole-source or critical inputs.
Real estate leases (operating, warehouse, equipment)
Landlord consent rights on assignment or change of control.
Distribution and reseller agreements
Territory, exclusivity, term, termination, and assignment provisions.
Franchise or licensing arrangements
If LLC is a franchisor or franchisee.
Software and SaaS licenses (especially enterprise)
Assignment restrictions, audit rights, and license scope.
Bank loan and credit agreements
Covenants, change-of-control acceleration, and prepayment terms.
Government contracts and grants
Anti-assignment statutes (Anti-Assignment Act for federal contracts) and novation requirements.
Joint venture, partnership, or strategic alliance agreements
Consent rights of co-venturers.
5. Intellectual Property
Trademark registrations and applications
USPTO and state trademark registrations, with chain of title.
Patents, patent applications, and patent assignments
If applicable, with assignment recordings.
Copyrights of material works
Software code, marketing materials, and any registered copyrights.
Founder, employee, and contractor IP assignment agreements
Confirmation that all IP created by anyone working for the LLC has been formally assigned to the LLC. This is the single most common gap in small LLCs.
Domain name registrations
All domains owned by the LLC, expiration dates, and registrant information.
Trade secret protection program
NDAs in place with employees, contractors, and vendors; confidentiality protocols.
Open source software usage
Inventory of open source components, licenses (GPL, MIT, Apache, etc.), and any compliance issues.
IP licenses in and out
Any technology licensed to or from the LLC.
6. Employment and Labor
Current employee roster
Names, titles, hire dates, compensation, and classifications (exempt vs. non-exempt).
Employment agreements, offer letters, and equity grants
All written agreements with employees.
Independent contractor agreements
All 1099 relationships with worker classification analysis.
Non-compete, non-solicit, and confidentiality agreements
All restrictive covenants. Note: FTC's prior non-compete rule was struck down by federal court in 2024, but state law (Michigan) still governs enforceability.
Employee handbook and policies
Current handbook, anti-harassment policy, and any state-specific compliance.
Pending or threatened employment claims
EEOC charges, wage and hour claims, OSHA citations, unemployment disputes.
Benefit plans and ERISA compliance
Retirement plans, health plans, plan documents, Forms 5500.
Workers compensation policies and claim history
Last 3-5 years.
7. Real Estate, Permits, and Compliance
Owned real property
Deeds, surveys, title insurance, and any encumbrances.
Real property leases
Already covered in material contracts; cross-reference.
Personal property leases (equipment)
Vehicles, machinery, IT equipment.
Operating permits and licenses
Industry-specific licenses, professional licenses, and any registration with regulators.
Environmental compliance
Phase I or Phase II environmental reports if applicable; any remediation history; storage tank registrations.
Health and safety compliance
OSHA inspection history, MIOSHA in Michigan.
Zoning and land use
If applicable to operating premises.
Data privacy compliance
Privacy policies, GDPR, CCPA, state breach notification laws, any incident history.
Cybersecurity controls and incident history
Recent breaches, incidents, or notifications.
8. Litigation and Insurance
Pending litigation by case
Caption, court, status, exposure analysis, and counsel.
Threatened litigation
Demand letters, pre-suit demands, and any reserved claims.
Settlement agreements
Last 5 years, with any continuing obligations.
Government investigations and inquiries
Any open or recently closed investigation by any federal, state, or local agency.
Insurance policies
General liability, property, errors and omissions, cyber, directors and officers, employment practices, workers comp.
Insurance claim history
Last 5 years of claims and any reserved matters.
9. Anti-Assignment and Consent Schedule
Master schedule of all consents required to close
Customer, supplier, lease, lender, governmental, and member-level consents, with status of each.
Anti-assignment provisions in material contracts
Each contract with assignment restrictions identified, with negotiation strategy.
Lender notice and consent requirements
Acceleration triggers in any debt instruments.
Member consent thresholds for sale
Operating agreement provisions on sale of all or substantially all assets, merger, or member sale.
Frequently Asked Questions
Why is the operating agreement the most important document?
The operating agreement governs nearly every aspect of the LLC: who can vote on what, how members are admitted and removed, how distributions are made, how interests are valued on transfer, and what happens on a sale. It almost always contains drag-along, tag-along, right-of-first-refusal, and approval provisions that affect deal mechanics. Reading it carefully is the first step in any LLC transaction.
What is a change-of-control provision and why does it matter?
Many contracts (customer agreements, leases, loan agreements) include provisions that say the contract terminates or requires consent if the entity is sold or undergoes a change of control. Mapping these out is critical because it determines what consents are needed to close, who has leverage over the deal, and what could fall apart at the last minute. Identifying these early lets you negotiate consents in parallel rather than at signing.
Why do you flag founder IP assignments specifically?
It is extremely common for a founder to have built early-stage code, designs, branding, or content personally, before formally assigning it to the LLC. Without a written assignment, the IP technically belongs to the founder, not the LLC. A buyer will require remediation (or refuse to close) if they discover the LLC does not have clean title to its core IP. Fixing this is straightforward but often missed.
Does this checklist apply to single-member LLCs?
Most of it. A single-member LLC will have many fewer membership and governance items, and a much shorter operating agreement (or none at all in some states), but every other category applies. Real estate, IP, employment, contracts, litigation, and compliance items are entity-level concerns regardless of how many members there are.
How long does legal DD typically take for a small LLC acquisition?
For a focused diligence on a small LLC with under 25 employees, simple operations, and a clean record, legal DD can often be completed in 3-6 weeks running in parallel with tax DD. More complex targets (multi-state operations, multiple subsidiaries, regulatory licenses, IP-heavy) take longer. The biggest variable is consent negotiation, which can extend the timeline significantly.
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