What reviewers look for
Governance diligence confirms who owns the company and whether major actions were properly authorized. Reviewers compare the charter, bylaws, and stockholder agreements against the stock ledger and cap table, and look for board and stockholder approval of each issuance, option grant, and significant transaction. They check whether directors were properly elected, whether related-party transactions were approved by disinterested decision-makers, and whether any holders have special rights. Missing approvals, records that do not match, and option grants made without a proper valuation are frequent findings. Subsidiaries, especially foreign ones, keep their own records, and those are often the least organized part of the file.
Repairing gaps before they matter
Many governance defects can be fixed. Delaware law provides a process for ratifying defective corporate acts, including improperly issued stock, and other states have their own approaches. Missing consents can sometimes be approved after the fact, and inconsistent records can be reconciled. Collecting signed copies, not drafts, of every governing document and consent is a practical first step. Equity awards deserve particular care because mistakes there can carry tax consequences for employees. The earlier these issues are found, the easier they are to fix without delaying a deal.
How findings affect a transaction
For buyers and investors, governance findings may lead to closing conditions, special representations, or indemnities. Serious problems, such as real uncertainty about who owns shares, may need to be resolved before closing. For the company being reviewed, preparation avoids losing leverage in negotiation. Companies preparing for a financing or sale often benefit from running their own review first. Some fixes, such as curing a gap in stockholder approval for a past financing, may need consents from current holders, and collecting them takes time. A seller that finds a problem late is usually better off disclosing it, since the representations will typically reach it anyway. We go through the records, identify the gaps, and set priorities for repairs or protections.
