Every acquisition involves compliance due diligence. Whether the acquirer is a PE firm, a strategic buyer, or a public company, its counsel will systematically review the target company's compliance history. Understanding what acquirers look for — and ensuring your compliance record is clean before a process begins — reduces deal risk, prevents post-signing indemnification claims, and often accelerates closing timelines.
Entity Good Standing: The Non-Negotiable Foundation
Acquirer's counsel will pull Certificates of Good Standing for every entity in the corporate structure from every state of registration. A dissolved entity — even a dormant subsidiary — is a hard stop. The entity must be reinstated before the deal can close, which takes time (2–6 weeks in some states) and creates unexpected cost. Entities that were administratively dissolved for missed annual reports must pay all delinquent fees, late penalties, and reinstatement fees.
Preparation: Six months before a likely process, pull good standing certificates for every entity. Address delinquencies immediately. Verify registered agents are current in every state.
BOI Compliance: Post-2024 Standard Diligence Item
Since the Corporate Transparency Act took effect January 1, 2024, BOI compliance has been a standard diligence item. Acquirer's counsel will ask: (1) were initial BOI reports filed for all reportable entities by the applicable deadlines? (2) have all required updates been filed within 30 days of ownership or officer changes? (3) are the current filings accurate?
A company that never filed BOI reports for its Delaware entities (formed before January 1, 2024, initial deadline January 1, 2025) is delinquent. Cure this before starting a process — the $591/day penalty exposure and the diligence finding both create unnecessary deal friction.
Payroll Tax Compliance
Acquirer's counsel will request payroll tax return transcripts (or IRS Form 4506-C) for all open tax years, confirming all 941 quarterly returns are filed and all deposits are current. State payroll tax compliance is similarly reviewed — are the company registered in every state where it has employees? Are SUI returns current? Any payroll tax delinquency creates both direct liability (the TFRP personal liability risk) and indemnification exposure for the sellers.
IP Assignment Completeness
The IP representation — "all IP used in the business is owned by or properly licensed to the company" — is one of the most important representations in a technology company acquisition. Acquirer's counsel will request: all employee IP assignment agreements (confirming current and former employees assigned IP), all contractor IP assignment agreements (especially for early development work), copies of patent, trademark, and copyright registrations, and any licenses under which the company uses third-party IP.
Employment Law Compliance
Common employment law diligence findings: (1) contractor misclassification for workers who should have been employees (creates back payroll tax, overtime, and benefits liability), (2) missing I-9 forms for current or former employees, (3) unpaid overtime from informal time-tracking practices, and (4) restrictive covenant agreements that are unenforceable in the employee's state (creates IP protection gaps).
Tax Return Completeness
All federal and state income tax returns must be filed for the past 5 years (or since inception if less). Missing returns are a hard stop. The acquirer will also review whether the company has taken aggressive tax positions that could be challenged — particularly around R&D tax credits, transfer pricing with related parties, or income characterization.
Compliance Singularity's Due Diligence Support
Compliance Singularity generates a comprehensive compliance data room package: entity good standing status across all states, BOI filing history with submission timestamps, annual report filing history with confirmation numbers, and payroll registration status by state. This package is generated in minutes rather than assembled over weeks from emails and portal screenshots. For companies in active M&A processes, Compliance Singularity's documentation capabilities are among the most practical benefits of the platform.