Buying a Business: Three Commonly Overlooked Due Diligence Areas

By Michael D. Rubin, CEO & Founder · Updated September 2026 · 696 words

Three areas are skipped in due diligence more often than they should be: the company's legal documents and intellectual property, its retirement plans, and how its workers are classified. None of them shows up clearly in the financial statements, and each can hand a buyer a problem that costs more than any discount they negotiated. For most people, buying a company is the largest financial decision of their lives, and these are the corners not to cut.

Why deal structure decides how much you inherit

In a stock or membership-interest purchase, you buy the entity with its history, including liabilities nobody has discovered yet. In an asset purchase, you choose the assets and contracts you take, and many past liabilities stay with the seller, though not all: some tax, employment and benefit obligations can follow the business.

Either way, diligence and the purchase agreement's protections, such as indemnities and escrows, are your defense. Our answer on selling assets or ownership interests explains the two structures from the seller's side.

1. Legal documents and intellectual property

Ask for every contract that matters and read it, with your attorney, for what happens when ownership changes. Customer and supplier agreements may require consent to transfer, or let the other party walk away on a change of control. Leases, equipment financing, licenses and franchise agreements often carry similar clauses.

Then confirm who owns what the business depends on. Trademarks may be registered to the owner personally. Software, designs or written content may have been produced by contractors who never assigned the rights. Domain names and social media accounts may sit in an employee's name. Review consulting and non-compete agreements with key people for whether they transfer and whether they can be enforced.

2. Retirement plans

A 401(k) or other retirement plan that was run carelessly can leave liabilities with whoever owns the plan sponsor after closing. Ask for the plan documents, annual filings and records showing that employee contributions were deposited on time and that required testing was done.

In a stock purchase, decide with your advisors whether the plan should be ended before closing or kept, because each choice has consequences. If the company takes part in a union multiemployer pension plan, get specialist advice early, since leaving such a plan can trigger a significant liability.

3. Employees versus contractors

Many smaller companies pay some workers as independent contractors on 1099 forms rather than as employees on W-2s. Sometimes that is correct; often it is not. If people who work regular hours, under the company's direction and with its tools, are treated as contractors, the business may owe back payroll taxes, penalties, overtime and benefits, and in a stock deal that exposure becomes yours.

Ask for a list of everyone paid on a 1099, what they do and how long they have worked there, and have an employment attorney or CPA review it. Classification also affects earnings: if those workers must become employees, the company's costs go up, and your price should reflect that.

Protect yourself in the documents

Findings in these areas do not have to kill a deal. They can be fixed before closing, covered by a specific indemnity from the seller, backed by money held in escrow, or reflected in the price. What matters is finding them before you sign. The seller's side of these protections is covered in protecting yourself from post-closing liabilities.

• Give your attorney and CPA a written list of these three areas at the start of due diligence
• Ask the seller directly, in writing, about known issues, so the answers become part of the record
• Tie each specific finding to a specific protection in the purchase agreement
• Allow time for fixes, such as plan corrections or contract consents, before closing

Where MDR & Associates fits

MDR & Associates represents sellers and prepares each company so buyers can review it properly, with a financial recast, a confidential marketing package and records that reconcile. Buyers register, sign an NDA and complete a financial profile before seeing details, and they bring their own attorney and CPA to due diligence. The firm can help arrange acquisition financing. To see current opportunities, start on the buyer page.

Where this fitsBuy a business in Texas →

Questions owners ask next

Who pays to fix problems found in due diligence?

It is negotiated. Common outcomes are that the seller fixes the issue before closing, the price comes down, or part of the price is held in escrow to cover it. For known problems, a specific indemnity from the seller is usually better than relying on general promises in the purchase agreement.

Do I need a specialist to review retirement plans?

For a simple plan with clean records, your CPA may be enough. For a larger plan, a plan with past problems or any union pension plan, bring in an employee benefits attorney. The cost is small compared with inheriting a compliance failure or a pension withdrawal liability.