Corporate-governance diligence is the entry layer for legal DD. Before negotiating purchase-agreement terms, the buyer verifies the seller has the legal authority and the unencumbered ownership to convey the agency. Three workstreams structure the verification: entity records integrity, shareholder-agreement and ownership integrity, and lien searches against the assets.
Current filings, tax payments, registered agent.
Entity good standing is a state-by-state status that reflects whether the agency entity has met its statutory filing and tax obligations. A non-good-standing entity may be administratively dissolved, may lack standing to enter contracts, and may not be able to convey assets. The buyer's check is straightforward and inexpensive.
- Secretary of State certificate of good standing. Issued by each state of incorporation and qualification. Verifies the entity is current on annual filings and franchise taxes.
- Registered agent verification. The entity has a current registered agent in each state of operation. Lapsed registered agent appointments precede administrative dissolution by a small window.
- Federal and state tax compliance. Most recent federal and state tax returns filed; estimated tax payments current; no outstanding tax liens. A tax lien on the entity is a federal-priority claim that can subordinate the buyer's interest in the assets.
- Foreign-qualification status. If the agency operates in states beyond its state of incorporation, the entity must be qualified to do business in each operating state. Unqualified operation creates regulatory exposure and sometimes contract-enforceability issues.
Bad-standing findings rarely kill deals — most are curable in 30–60 days through filing and payment. They do delay closing and create the buyer-side leverage to require the seller to cure at the seller's expense as a closing condition.
The buried clause that can kill the deal.
The single most consequential corporate-governance check. The agency's shareholder agreement or LLC operating agreement may contain provisions that materially affect the seller's ability to convey ownership. The most consequential are:
Right of First Refusal.
- Other shareholders have priority to buy.
- Triggered by the seller's intent to sell.
- Can require pricing match at terms.
- Unilateral seller-sale may be void without waiver.
Tag-along provisions.
- Minority shareholders can require inclusion in the sale.
- Can change deal economics if exercised.
- Common in PE-backed and family-owned agencies.
Supermajority consent.
- Some agreements require 67–80% shareholder approval for a sale.
- Single dissenting shareholder can block the deal.
- Pre-LOI waiver collection is mandatory.
The ROFR check is non-negotiable. The buyer who closes without verified ROFR waivers from every covered shareholder has a contingent deal-voidness exposure that may not surface for years — at which point the unwind is catastrophic.
The buyer's diligence reviews the agency's complete corporate-document set: shareholder agreement (for corporations), operating agreement (for LLCs), buy-sell agreements, voting agreements, and any side-letter arrangements between owners. Each provision that touches sale of ownership requires either (a) verified satisfaction of the triggering conditions or (b) verified waiver from each covered party. Pre-LOI is the timing because waiver-refusal post-LOI is a leverage problem; pre-LOI is a deal-design problem.
Secured claims traveling with the assets.
UCC-1 financing statements are the public-record mechanism by which secured creditors perfect their interest in a debtor's assets. The buyer's diligence runs UCC-1 lien searches against the agency entity in each state of operation. Three categories of finding matter.
- Senior debt liens. Bank or specialty-lender liens on the agency's assets — typically all-asset filings that cover accounts receivable, equipment, AMS, and general intangibles. These must be either satisfied at close (debt paid off, lien released) or assumed by the buyer with lender consent.
- Vendor or equipment liens. Specific-asset liens from vendors that financed equipment purchases or AMS implementations. Usually smaller dollar amounts but can complicate asset-purchase structures where the buyer doesn't want to inherit the obligation.
- Tax liens. Federal or state tax liens against the entity. These take priority over almost everything else and must be satisfied at close — sometimes from purchase proceeds in escrow.
The diligence also surfaces released liens — UCC filings that show a lien was historically present but has been terminated. These are not current encumbrances but they confirm the agency's historical lender relationships and can inform the buyer's understanding of the agency's capital history.
In asset-purchase transactions, the buyer's protection against unfound liens is a combination of (a) thorough UCC-1 searches in every operating state, (b) seller representations and warranties that no other liens exist, (c) indemnification covering breach of the lien-related reps, and (d) escrow holdback to fund potential lien-clearance costs if liens surface post-close.
The three corporate-governance workstreams — entity standing, shareholder-agreement integrity, lien searches — together establish whether the deal can lawfully be done. The downstream legal-DD layers (purchase-agreement architecture, regulatory compliance, risk and liability mapping) build on this foundation. The Pillar — Legal & Regulatory DD for Buyers — covers the broader framework.