10 Legal Red Flags Investors Should Catch During Due Diligence
Catch these 10 legal red flags before you underwrite. Watch for a CEO who can’t be fired, a chair/CEO combo, and minutes that were never approved for key contracts. Check for charter/bylaw mismatches and cap table drift. Look for preferred veto rights that can block a sale or refinance. Ask about subpoenas and “one-time” reserves that keep reappearing. Confirm whether permits are expired or non-transferable. Verify contractor IP assignments are signed and enforceable. Hunt for unpaid taxes, covenant breaches, and penalties. Keep going and you’ll see fixes I require. Legal Red Flags in Governance: CEO Power Unchecked Although a visionary founder can move fast, you should treat “CEO power unchecked” as a legal red flag. It’s often the first domino in governance failures that end in valuation hits, regulatory probes, and investor lawsuits. WWE’s Vince McMahon, for example, agreed to a $1.7 million SEC settlement over alleged failures to disclose hush-money arrangements. When the CEO also...