Series A due diligence is typically the first time a startup's compliance record is subjected to professional scrutiny. Investor counsel will review entity good standing, BOI compliance, IP assignments, employment law compliance, and cap table governance as standard components of the legal review. Understanding what they look for — and ensuring it's clean before the process starts — prevents deal delays and post-signing indemnification claims.
Entity Good Standing: The Foundation
Every entity in the company's corporate structure must be in good standing in its state of formation and all states where it is registered as a foreign entity. Investor counsel obtains Certificates of Good Standing from each relevant Secretary of State. A dissolved or administratively revoked entity — even a dormant subsidiary — must be reinstated before closing, adding time and cost to the process.
Compliance check: Pull Certificates of Good Standing for all entities at least 60 days before expected closing. Address any delinquent annual reports immediately.
BOI Compliance: The New Required Disclosure
Since January 1, 2024, investor counsel will include BOI compliance in due diligence checklists. Specifically: has the company filed initial BOI reports for all reportable entities? Have updates been filed within 30 days of ownership changes? The diligence request will ask for confirmation of filing and potentially copies of the filed reports.
A company that has never filed a BOI report for its Delaware C-corp (formed before January 1, 2024, with an initial report deadline of January 1, 2025) is delinquent and faces $591/day penalties. Cure this before the diligence process begins.
IP Assignment: Every Employee and Contractor
Investor counsel will request copies of IP assignment agreements from all employees and contractors who contributed to the company's technology, product, or intellectual property. This is typically framed as a representation in the investment agreement: "All employees and contractors who contributed to the Company's intellectual property have executed agreements assigning such IP to the Company."
Missing IP assignments — especially from early contractors or consultants who helped build V1 of the product — require retroactive execution. Getting signatures from former contractors can be difficult and sometimes requires compensation.
Stock Option and Equity Documentation
Investor counsel reviews the company's equity governance: option grants have board authorization, are priced at FMV supported by a 409A valuation, have proper award agreements executed, and accelerate on the terms specified in the plan. Missing 83(b) elections from founders with restricted stock create personal tax liabilities that reflect poorly on company governance. Board consents should exist for all option grants.
Employment Law Compliance
Common Series A employment law findings: contractor misclassification (contractors doing employee work without proper classification), missing I-9s for current or former employees, and unpaid overtime from pre-HR-system days when time tracking was informal. These create representations and warranties exposure in the investment agreement.
Tax Compliance
Federal and state tax returns must be current. Specifically: the company's federal income tax return (or extension) must be filed for all prior years; state income tax returns for all operating states; and franchise taxes paid (particularly Delaware). Unfiled returns are a hard stop in most diligence processes.
How Compliance Singularity Prepares You
Compliance Singularity maintains a continuously current compliance record with filing confirmations, good standing status checks, and BOI filing timestamps. When a Series A process begins, the compliance section of the due diligence response is generated from the system's records rather than assembled from emails and portal screenshots. This reduces diligence prep time significantly and demonstrates to investor counsel that the company's compliance infrastructure is professionally managed.