Most business owners only think about due diligence when a buyer’s lawyers send a 20-page information request. By then, the timetable is set by the buyer, every gap in your records becomes a negotiating point, and problems you could have fixed quietly are now discovered by the other side.
Vendor due diligence turns this around. It means investigating your own business, from the buyer’s point of view, before you go to market. You find the problems first, fix what can be fixed, and decide how to disclose what cannot. Done well, it shortens the deal, protects the price and reduces the warranty claims that can follow you after closing.
The exercise matters more in 2026 than it did a few years ago. Buyers and funders are more cautious, compliance regimes such as POPIA and beneficial ownership filing are now routinely checked, and the merger control thresholds under the Competition Act changed on 1 May 2026, which affects whether and when your deal must be notified.
What vendor due diligence is, and what it is not
Vendor due diligence is a structured review of the legal, financial and tax position of the business, commissioned by the seller. It can be a full report shared with bidders, or an internal “health check” that is used only to clean up the business and prepare the disclosure letter.
It does not replace the buyer’s own due diligence. A serious buyer will still investigate. What changes is that you control the starting point. When the buyer’s questions arrive, the answers, documents and explanations are already prepared, and nothing in the data room comes as a surprise to you.
The areas buyers look at first
Corporate records and ownership
Buyers want to see a clean chain of title to the shares or assets they are buying. Check that the share register, share certificates and securities register are complete, that every share issue and transfer was properly authorised under the Companies Act 71 of 2008 and the memorandum of incorporation (MOI), and that annual returns are filed with the CIPC. Make sure the company’s beneficial ownership information has been filed and is up to date, as this is now a standard request.
Look out for informal promises of shares to employees, advisers or early investors. An undocumented promise of equity is one of the most common issues that delays a sale.
Material contracts
List your key customer, supplier, lease, licence and finance agreements. For each one, check:
- whether it is signed and still in force;
- whether it contains a change of control or non-assignment clause that requires the counterparty’s consent to the sale;
- exclusivity, restraint or most-favoured-customer terms that would bind the buyer; and
- any personal suretyships or guarantees given by the sellers, which they will want released on closing.
Employees
If the business is sold as a going concern, section 197 of the Labour Relations Act 66 of 1995 generally transfers the employees automatically to the buyer on their existing terms. Buyers will want accurate employment contracts, a list of employees with their remuneration and leave balances, details of any disputes at the CCMA or Labour Court, and confirmation that incentive and bonus arrangements are documented. Undocumented bonus promises and misclassified “contractors” are frequent problem areas.
Intellectual property
Confirm that the company, and not a founder, a developer or a related company, owns its trade marks, domain names, software and content. Check that trade marks are registered in the right name and classes, and that developers and contractors have signed written assignments of their work.
Tax
Buyers will review income tax, VAT, PAYE and customs compliance, and will usually ask for a tax compliance status pin from SARS. Historical exposures, such as unpaid VAT on certain transactions or undeclared fringe benefits, are often better addressed before the sale, for example through SARS’s Voluntary Disclosure Programme, than discovered in the buyer’s review.
Regulatory compliance and data
Depending on your sector, this may include licences and permits, B-BBEE certificates, occupational health and safety compliance and, almost always, compliance with the Protection of Personal Information Act 4 of 2013 (POPIA). Buyers will ask whether an information officer is registered, whether there have been any security compromises, and how customer data is collected and used.
Disputes
Prepare a schedule of current and threatened litigation, letters of demand and regulatory investigations, with a realistic assessment of each.
Merger control: check the new thresholds early
A sale that results in a change of control may be a “merger” under the Competition Act 89 of 1998. Intermediate and large mergers must be notified to the Competition Commission and approved before they are implemented. From 1 May 2026, the Minister of Trade, Industry and Competition increased the notification thresholds and the filing fees. On the revised thresholds, an intermediate merger is notifiable where the combined annual turnover or assets of the parties is at least R1 billion and the target’s turnover or assets is at least R200 million.
Many owner-managed businesses now fall below these figures, but do not assume this. The calculation rules are technical, and the Commission can still call for notification of a small merger in some circumstances. Where notification is needed, approval must be built into the timetable and the agreement’s conditions.
Selling the data room safely under POPIA
A data room often contains employee files, customer lists and other personal information. Sharing it with prospective buyers is a form of processing under POPIA. Before you open the data room:
- have each bidder sign a confidentiality agreement that also deals with personal information;
- share personal information only when it is needed, and redact or anonymise where you can (for example, summarise salaries by role in the early rounds); and
- control access and keep a record of who saw what.
Turning findings into protection
Vendor due diligence is only useful if you act on what it finds. Issues usually fall into three groups:
- Fix before the sale. Missing resolutions, unsigned contracts, unregistered trade marks and IP assignments can often be regularised quickly.
- Disclose against the warranties. Issues that cannot be fixed should be fairly disclosed in the disclosure letter, so that the buyer cannot later claim for a breach of warranty on a matter it knew about.
- Price or structure around them. Some risks are better dealt with through a specific indemnity, a retention, an earn-out or a choice between a share sale and an asset sale.
A practical vendor due diligence checklist
- Appoint your legal, financial and tax advisers early, ideally six to twelve months before going to market.
- Collect the company’s statutory records, MOI, shareholders’ agreement and CIPC filings, including beneficial ownership.
- Build a contracts schedule and flag change of control, assignment and exclusivity clauses.
- Review employment contracts, policies, incentive schemes and open labour disputes.
- Confirm ownership and registration of all IP, domains and software.
- Obtain your SARS tax compliance status and deal with any historical exposures.
- Check licences, B-BBEE status, health and safety and POPIA compliance.
- Assess whether the deal may need Competition Commission approval under the 2026 thresholds.
- Set up a well-indexed data room with POPIA safeguards.
- Prepare a draft disclosure letter and a list of matters to fix before signing.
How O’Reilly Law can help
We act for sellers of owner-managed and growth businesses. We carry out vendor legal due diligence, help clean up corporate records, contracts and IP ownership, prepare data rooms and disclosure letters, and negotiate sale agreements, warranties and indemnities. We work alongside your accountants and tax advisers so that the legal preparation supports the price and structure you are aiming for.
Contact us to prepare your business for sale before you speak to buyers.
Related reading: Legal due diligence when buying a business in South Africa · Share sale or asset sale?
This article is general information and not legal or tax advice. Correct as at October 2026.