1. Choose the Transaction Structure before Reviewing the Documents
The effect of a diligence finding depends partly on whether the buyer acquires ownership of the company or selected assets and liabilities.
A Stock Purchase Changes Ownership of the Entity
In a stock purchase, the buyer acquires equity in the target, while the target generally continues to own its assets and remain responsible for its liabilities.
Historical debt, tax exposure, litigation, employee claims, customer obligations, and compliance issues can therefore remain inside the acquired company. Contracts and permits may also contain change-of-control provisions requiring consent or notice.
A stock purchase agreement review can connect those issues to the negotiated terms.
An Asset Purchase Requires a Transfer Analysis
An asset deal allows the parties to identify the property being transferred and the liabilities the buyer agrees to assume.
Contracts, intellectual property, leases, permits, inventory, receivables, and other assets may require separate assignments or consents. An asset purchase agreement should distinguish assumed obligations from liabilities retained by the seller.
California generally does not impose the seller's liabilities on an asset purchaser solely because assets were acquired, but recognized successor-liability exceptions can apply. Contract wording therefore does not eliminate every potential third-party claim.
2. Due Diligence Should Follow the Risk Being Acquired
A useful diligence process connects each document to a transaction question instead of treating the data room as a checklist.
Contracts Need Assignment and Change-of-Control Review
Customer, supplier, lease, financing, licensing, and technology agreements may restrict assignment or react differently to a change in control.
An asset purchase may require consent to transfer a contract. A stock purchase may leave the contracting entity unchanged while still triggering a change-of-control provision.
The practical question is whether the contract remains usable after closing and whether consent, notice, repayment, or another condition is required.
Liabilities and Operating Rights Need Separate Checks
Debt records can reveal repayment duties and security interests. Intellectual-property records help establish ownership and licenses. Employment materials may identify compensation obligations or pending claims. Litigation files show disputes that can continue after closing.
Permits and licenses also need separate treatment because some continue, while others require notice, consent, amendment, or a new application.
A corporate due diligence review should tie those findings to the structure and purchase agreement.
3. Representations and Warranties Define Contractual Statements
Due diligence tests the seller's records, while representations and warranties place selected factual statements into the acquisition agreement. They serve related but different functions.
Seller Representations Depend on Their Exact Wording
Representations may address organization, authority, financial statements, taxes, contracts, litigation, employees, intellectual property, and compliance.
Their scope depends on materiality standards, knowledge qualifiers, defined periods, and other negotiated limitations.
A representation is not a general promise that the business carries no risk. Its effect depends on what fact was stated and how the agreement limits or qualifies that statement.
Disclosure Schedules Identify Exceptions
Disclosure schedules commonly list matters that qualify the representations.
A litigation schedule may disclose an existing claim. A contract schedule may identify agreements requiring consent. A debt schedule can list obligations to be repaid or assumed at closing.
The schedule therefore needs to be read together with the representation it modifies.
4. Closing Conditions Determine Whether the Deal Must Close
Signing and closing are separate events when completion depends on regulatory, contractual, financing, or other conditions.
Consents and Regulatory Review Can Affect Timing
Lenders, landlords, customers, licensors, and regulators may have consent or notice rights tied to a transaction.
Larger acquisitions may also require Hart-Scott-Rodino review. For transactions closing on or after February 17, 2026, the basic HSR size-of-transaction threshold is $133.9 million. Reportability can still depend on additional statutory tests, exemptions, and the transaction structure.
The agreement should distinguish approvals required before closing from matters that can be completed afterward.
Closing Conditions Are Different from Covenants and Remedies
A closing condition determines whether a party's obligation to complete the deal has become due.
A covenant requires specified conduct before or after closing. Indemnification addresses defined losses or breaches after closing.
Keeping those concepts separate helps determine whether a problem permits delay, termination, damages, or another contractual response.
5. Purchase Price Adjustments Need Defined Accounting Rules
Working capital, cash, debt, transaction expenses, and earnouts can change the amount ultimately paid, so the agreement needs definitions that can be applied to actual financial records.
Working Capital Definitions Often Drive Disputes
A working-capital adjustment typically compares closing working capital with an agreed target.
Disputes can turn on which accounts are included, how reserves are treated, what accounting principles apply, and whether an item belongs in working capital, debt, or transaction expenses.
A reference balance sheet, calculation method, review period, and dispute process can reduce ambiguity.
Earnouts Create Post-Closing Measurement Issues
An earnout ties part of the consideration to future performance.
The agreement may need to define the measurement period, financial metric, accounting treatment, access to records, operating discretion, and dispute procedure.
The earnout does not eliminate valuation uncertainty. It moves part of that issue into the post-closing period.
6. Indemnification Defines Many Post-Closing Contract Claims
After closing, indemnification provisions can allocate losses tied to specified breaches, retained liabilities, taxes, or other negotiated matters.
Survival Periods, Baskets, and Caps Shape Recovery
Acquisition agreements may use survival periods, baskets, deductibles, caps, and claim-notice procedures.
Those limits do not necessarily apply equally to every representation, covenant, tax matter, or specifically identified liability.
An indemnification claims analysis therefore begins with the provision allegedly breached and the remedy attached to it.
Contract Allocation Does Not Decide Every Third-Party Claim
An asset purchase agreement can allocate liabilities between buyer and seller, but that allocation does not necessarily determine the rights of creditors, regulators, employees, or other third parties.
California successor-liability principles can impose liability in recognized circumstances despite the parties' contractual allocation. Assumed liabilities and liabilities arising independently under applicable law should therefore be analyzed separately.
7. Confirm Regulatory Filings and Local Operating Requirements
California entity filings, federal antitrust review, and San José business registration are separate processes. Their relevance depends on the legal structure and how the acquired business will operate after closing.
California Filings Depend on the Legal Structure
A statutory merger or conversion may require filings with the California Secretary of State.
A stock acquisition that leaves the target entity intact does not automatically require the same filing as a statutory merger. An asset purchase may instead require assignments, title transfers, consents, and other transaction-specific documents.
The filing analysis should follow the structure actually chosen.
San José Requirements Concern Business Operations
San José does not create separate substantive M&A law.
A person or company beginning business in San José generally must register for a Business Tax Certificate within 90 days after starting business activity. An acquisition of an existing local business may also require review of registration information, locations, zoning, permits, and operational records to determine whether updates or new approvals are necessary.
The local registration question should remain separate from California entity filings and federal merger review.
28 Oct, 2026
