Legal Due Diligence Checklist
Partnership Legal Due Diligence Checklist
Legal review items for general partnerships, limited partnerships, and limited liability partnerships. Partnership-specific concerns include partner authority, joint and several liability for general partners, continuation provisions on partner withdrawal, and the partnership agreement itself.
Why a Partnership-Specific Checklist
- •Partners in a general partnership face joint and several liability for partnership obligations, which has significant deal implications.
- •The partnership agreement governs partner authority, transfer restrictions, dissolution, and continuation, but is often informal in small partnerships.
- •A partner's death or withdrawal can trigger automatic dissolution under default state law unless the agreement provides for continuation.
- •Indemnification provisions among partners are often missing or unenforceable, leaving exit liability allocation unclear.
The Checklist
Items a buyer or seller in a partnership transaction should expect to request, produce, or review.
1. Formation and Structure
Statement of partnership authority (if filed)
Any state-filed statements limiting or describing partner authority.
Certificate of limited partnership (LP) or LLP registration
Filed certificates and any amendments, with state-stamped copies.
LLP registration renewals
Annual renewals required in most states; a missed renewal converts the LLP to a general partnership.
Foreign qualification filings
States where the partnership is registered to do business outside its formation state.
EIN assignment letter
Form CP-575 or equivalent.
DBA / fictitious name registrations
Any name used other than the formal partnership name.
2. Partnership Agreement
Current partnership agreement and all amendments
Including any unwritten understandings or course-of-dealing modifications.
Partner authority provisions
What each partner can bind the partnership to, and any limitations on authority.
Capital contribution and capital call provisions
Initial contributions, additional capital obligations, and remedies for default.
Profit and loss allocation provisions
How profits and losses are allocated; whether they match capital ratios or use special allocations.
Distribution provisions
Required distributions, discretionary distributions, and tax distributions.
Partner admission and withdrawal
Procedures for admitting new partners and consequences of partner withdrawal.
Death, disability, and divorce provisions
What happens to a partner's interest on death, disability, or divorce; mandatory buyout terms.
Continuation provisions
Whether the partnership continues automatically on partner withdrawal or dissolves.
Buy-sell provisions and valuation methodology
How a departing partner's interest is valued and paid for.
Drag-along, tag-along, and right-of-first-refusal
Transfer restrictions and forced-sale mechanics.
Dispute resolution provisions
Mediation, arbitration, or litigation; venue and choice of law.
Non-compete and non-solicit covenants among partners
Restrictions on competing activities by current and former partners.
3. Partner Records
Current partner list
Names, addresses, percentage interests, capital balances, and partner type (general, limited, withdrawn).
Partner admission history
Each partner's date of admission, capital contributed, and any special terms.
Withdrawal and buyout history
Departed partners, terms of buyout, and any unresolved obligations.
Capital account statements by partner
Current balances and roll-forward.
Partner loan history
Loans from partners to partnership and from partnership to partners.
K-1s for last 4-6 years (cross-reference with tax DD)
Confirm consistency between books and tax reporting.
4. Authority and Agency Issues
Personal guarantees by general partners
Any obligations where individual partners are personally liable.
Bank signing authority
Who can sign on partnership accounts and any limits.
Power of attorney instruments
Any POAs granted by the partnership or partners.
Past actions taken without proper authority
Any contracts, agreements, or filings made by a partner outside their authority that may be voidable.
General partner indemnification provisions
How the partnership protects general partners from personal exposure.
5. Material Contracts and Change of Control
Top customer contracts
Top 10 or top 80% of revenue, with assignment and change-of-control provisions.
Top supplier and vendor agreements
Critical inputs and any sole-source dependencies.
Real estate leases
Landlord consent rights on partnership reorganization or partner change.
Distribution and reseller agreements
Territory, exclusivity, and assignment provisions.
Bank loans and credit agreements
Acceleration on change of control or partner change; covenants.
Government contracts
Anti-Assignment Act and novation considerations.
Software and SaaS licenses
Assignment and audit rights.
Joint venture or strategic alliance agreements
Co-venturer consent rights.
6. Intellectual Property
Trademark, copyright, patent registrations
Federal and state filings, with chain of title.
Partner IP assignment agreements
Confirmation that each partner's pre-formation IP has been formally assigned to the partnership.
Employee and contractor IP assignments
Standard assignment language in offer letters and contractor agreements.
Domain registrations
All domains, expiration dates, registrant information.
Trade secret protections and NDAs
Confidentiality program and signed NDAs.
Open source software inventory
Licenses, compliance, and any GPL exposure.
Inbound and outbound IP licenses
Any technology licensed to or from the partnership.
7. Employment and Labor
Employee roster
Names, titles, hire dates, compensation, classifications.
Employment agreements and offer letters
All written employment documentation.
Independent contractor agreements
All 1099 relationships.
Restrictive covenants
Non-compete, non-solicit, confidentiality.
Employee handbook and policies
Current handbook and any state-specific addenda.
Pending or threatened employment claims
EEOC, wage and hour, OSHA, unemployment.
Benefit plans and ERISA compliance
Retirement, health, plan documents, Forms 5500.
Workers compensation policies and claim history
Last 3-5 years.
8. Real Estate, Permits, and Compliance
Owned real property
Deeds, titles, surveys, mortgages, and any liens.
Personal property leases (vehicles, equipment)
Lease terms and assignment provisions.
Operating permits and licenses
Industry-specific licenses and registrations.
Environmental compliance
Phase I or Phase II reports if applicable; remediation history.
Health and safety compliance
OSHA / MIOSHA inspection history.
Data privacy compliance
Privacy policies, breach notification, GDPR/CCPA exposure.
9. Litigation, Insurance, and Disputes
Pending and threatened litigation
All cases by caption, court, status, exposure, counsel.
Inter-partner disputes
Any disagreements among partners about authority, allocations, or compensation.
Settlement agreements with continuing obligations
Last 5 years of settlements.
Government investigations
Any open or recently closed inquiries.
Insurance policies
General liability, professional liability, partnership policies, cyber, EPL.
Claim history
Last 5 years.
10. Consent and Closing Schedule
Master consent schedule
All third-party consents required for the transaction, by counterparty and status.
Partner consent thresholds
What partner approvals the transaction requires under the partnership agreement.
Lender notice and consent requirements
Notice provisions and any acceleration triggers.
Anti-assignment provisions in material contracts
Each contract with assignment restrictions, with negotiation status.
Frequently Asked Questions
What is the difference between a general partnership, LP, and LLP for diligence purposes?
In a general partnership, every partner has joint and several liability for partnership obligations. In an LP, general partners have unlimited liability and limited partners have limited liability (so long as they do not participate in management). In an LLP, partners have limited liability, but the LLP must register annually in most states or it converts back to a general partnership. Diligence focuses on confirming the structure is what it appears to be, that registrations are current, and that no partners have lost their limited liability protection through participation or by failing to comply with formality requirements.
Why do continuation provisions matter so much?
Default state partnership law (the Uniform Partnership Act, in most states) treats partner withdrawal, death, or bankruptcy as a dissolution event. Without a continuation provision in the partnership agreement, a partner's death can trigger automatic winding up, which can disrupt customer contracts, leases, and the deal itself. Most modern partnership agreements include continuation provisions; many older ones do not.
How is partner authority an issue in diligence?
Each partner in a general partnership generally has authority to bind the partnership in the ordinary course. This means a single partner could have signed contracts, taken on debt, or made commitments that the other partners did not know about. Diligence often surfaces obligations made by individual partners that were never reviewed by the rest of the group. Identifying these is essential because they bind the partnership.
What about partnerships that operate informally without a written agreement?
More common than people think, especially in older family partnerships. Without a written agreement, default state law governs, which often produces results the partners would not have chosen (equal allocations, dissolution on withdrawal, equal authority). Reconstructing the actual deal terms from course of conduct, K-1 reporting, and partner testimony is a meaningful part of diligence in that situation.
Does this checklist apply to LLCs taxed as partnerships?
Use the LLC legal DD checklist for LLCs, even if they are taxed as partnerships. The legal architecture (operating agreement, articles of organization) is governed by LLC law, not partnership law. The tax mechanics on the tax DD side are partnership-style; the legal mechanics here are LLC-style.
Pillar Pages
Sell-Side Tax Due Diligence
For family business owners going to market. Surface and fix tax exposures before a buyer finds them and discounts your price.
Buy-Side Tax Due Diligence
For small businesses growing through acquisition. Understand what you are buying, who carries the exposure, and how to structure the deal.