When founders prepare for an exit, whether through a share sale, asset disposal, or investment round, buyers will inevitably conduct detailed legal due diligence. Any gaps in compliance, missing approvals, or incomplete records can delay the transaction, weaken negotiating leverage, or even reduce valuation.
This checklist highlights common legal issues that founders and sellers should address before buyers’ lawyers begin their due diligence.
Share Capital
Founders should ensure that all equity-related actions have been properly authorised, documented, and filed. Key issues include:
- Have all past share allotments been duly approved by directors and shareholders, with signed resolutions in place?
- Have shareholder approvals for allotments been lodged with the Registrar of Companies (“Registrar”) within the statutory time limit?
- Have returns of allotment been filed for every share allotment?
- Have all share transfers been approved by the board of directors, where required under the company’s constitution?
- Has stamp duty been paid on all share transfer forms, with evidence of stamp certificates?
- Is the register of members accurate and up to date?
- Have changes to the register of members been notified to the Registrar within the statutory time limit?
Statutory Filings and Corporate Governance
- Have statutory filings required under the Companies Act 2016, such as annual returns, notices of change of registered address, and financial statements, been lodged with the Registrar within the statutory time limit?
- Are all corporate records and statutory registers (register of members, directors, directors’ shareholdings, beneficial owners, and transfers) complete, accurate, and current?
Key Commercial Contracts
Buyers will scrutinise material contracts that underpin the business. Founders should review:
- Are all key contracts (customer, supplier, distributor, licensing, etc.) in writing and properly executed?
- Have renewals, extensions, and amendments been documented?
- Have all applicable stamp duties been paid?
- Do any contracts contain “change of control” provisions requiring counterparty’s consent before a sale or any change in shareholders, shareholding, directors, or management?
Real Property (Office, Warehouse, and Other Premises)
- Where the company owns real property, are the land title and Certificate of Completion and Compliance (CCC) available?
- Are all tenancy or lease agreements documented, signed, and duly stamped?
- Have any renewals or extensions been formalised in writing?
Banking and Finance Arrangements
Financial institutions often impose restrictions on changes in ownership or management. Founders should confirm:
- Do any banking or financing facilities require lender consent for a sale or any change in shareholders, shareholding structure, directors, or management?
- Are there financial or operational covenants that could be breached by an exit event or post-transaction restructuring?
Takeaway
Founders should not wait until potential buyers begin due diligence to uncover legal gaps that may slow the deal. To protect valuation and ensure a smooth exit:
- Identify and remedy compliance gaps early.
- Ensure statutory filings, governance records, and key documents are complete and readily available for buyer review.
A strong business is only the starting point for a successful founder exit. Demonstrating preparedness, transparency, and robust compliance is essential to convincing buyers of the business’s value.
This article is authored by our Partner, Ms Wong Mei Ying. The information in this article is intended only to provide general information and does not constitute any legal opinion or professional advice.
Wong Mei Ying
Partner
T: +603 2050 1967