Light Due Diligence Before a Transaction. How to Quickly Check Whether Your Company Is Ready for an Investor

Imagine this: you are one week away from signing the term sheet. The investor asks about copyright assignments from developers. Your CTO says, “I think we have them.” Maybe. That one word can reduce the valuation by more than ten percent or bring the funding round to a halt.

Poland’s investment market is accelerating. In 2025, VC investment reached PLN 3.4 billion – up 28% year on year, with 183 transactions, including 134 seed rounds. The M&A market recorded 348 completed transaction processes in 2024. More transactions mean more due diligence. And more due diligence means more formal deficiencies being uncovered – and more valuation reductions.

Light due diligence – a quick, cross-sectional legal review of a company – allows you to identify risks before the other party does. It does not replace a full review. It helps you decide whether and where you need to dig deeper, and gives you control over the narrative in negotiations.

In this article, I will show you which deficiencies are most commonly uncovered during legal reviews of startups and technology companies, how much they may cost, and what to do about them – before the investor asks.

Key terms to know before reading

Before we get to the heart of the matter, here is a brief explanation of the terms used in this article:

What light due diligence covers and how it differs from a full review

According to data from PARP, full due diligence takes anywhere from several days to approximately 2 months, involves several to more than a dozen people, and costs tens of thousands of zlotys. For a startup preparing for a seed round, that is often too much time and money.

Light DD works differently. It involves a quick review of 6-7 legal areas, focuses on identifying critical risks, and produces a prioritized report – not hundreds of pages of descriptions.

Light DD does not replace a full review – the investor will carry one out anyway. But it allows you to fix what can be fixed before the other party finds it and uses it in negotiations.

Seven areas we examine during light due diligence

Each of these areas creates risks that may affect the valuation, prolong negotiations, or block the transaction.

Corporate law – the foundation that most often falls short

This is the area where startups have the largest backlog. Typical findings include:

1. Outdated entries in the National Court Register (KRS) – changes to the management board, address, or business activities have not been reported to the register.
2. Missing resolutions – shareholders’ meetings have not been held or documented in recent years.
3. Articles of association unsuitable for the planned transaction – no drag-along or tag-along clauses or restrictions on the transfer of shares. Companies established through S24 use a simple template without these provisions – adding them requires an amendment executed before a notary.
4. Deficiencies in powers of attorney – people signing agreements on behalf of the company were not authorized to do so.

For an investor, disorganized corporate records signal organizational chaos. This does not necessarily indicate substantive problems, but it weakens your negotiating position.

It is worth remembering that in a limited liability company, shareholders’ liability is limited to the value of their contributions. But if you are a management board member – as founders usually are in startups – you are liable for the company’s obligations with all your personal assets if enforcement against the company proves ineffective (Article 299 of the Polish Commercial Companies Code). Light DD is part of exercising due care and may protect you against such an allegation.

Intellectual property – the asset that determines value

In technology companies, IP often accounts for 60-80% of the company’s value. At the same time, this is the area where deficiencies are uncovered most often.

1. No copyright assignments from developers, designers, or copywriters – especially those engaged on B2B contracts. Without a written agreement transferring the rights, the company does not own the code it commissioned.
2. Unclear open-source licenses – open-source components in the product may be subject to licenses restricting commercial use.
3. Unregistered trademarks – a brand, logo, or product name without protection.
4. No documentation for non-cash contributions – in a simple joint-stock company, contributions in the form of work or services cannot be credited toward the share capital and must be precisely described in the articles of association or the share issue resolution.

Expert estimates indicate that the absence of an effective transfer of software copyright may result in a valuation adjustment of 20-40% or more – potentially leading to a change in the transaction structure or withdrawal from the deal.

GDPR and personal data protection

Fines imposed by the President of the Polish Data Protection Office are increasing every year. In 2023, the total amount of fines was PLN 1,230,331. In 2024, it had already reached PLN 13,907,741. In 2025 – more than PLN 64 million, including PLN 27 million for Poczta Polska and PLN 18.4 million for ING Bank Śląski.

What we examine during light DD:

1. Record of processing activities (ROPA) – whether it exists and is up to date.
2. Data processing agreements with processors (hosting providers, CRM providers, marketing tools) – whether they have been concluded.
3. Privacy policy – whether it reflects the actual processes.
4. Legal bases for processing customer, user, and employee data.

If these documents are missing during a transaction, this means additional representations and warranties for the seller or the need to suspend the process until matters are put in order.

Employment law and engagement models

Technology companies often combine employment agreements with B2B contracts. This is a flexible model – but it creates risks that investors examine closely.

1. B2B contractors performing work with the characteristics of an employment relationship – risk of reclassification and outstanding social security contributions going back up to 5 years.
2. No workplace or remuneration regulations – required for employers with at least 50 employees.
3. Outstanding annual leave – creates liabilities for payments in lieu of unused leave.
4. No copyright assignment clauses in employee agreements – IP created by an employee without such a clause may not belong to the company.
5. No internal reporting procedure – mandatory since 25 September 2024 for entities employing at least 50 people (Whistleblower Protection Act, Journal of Laws 2024, item 928).

From 8 July 2026, fines for offenses under the Polish Labour Code will increase from the current PLN 30,000 to PLN 60,000 – doubling the maximum penalty for violations relating to remuneration, leave, and occupational health and safety.

Contact us if you would like to check the state of your employment documentation before a transaction.

AML – anti-money laundering

If your company is an obliged institution (a fintech, cryptocurrency exchange, accounting firm, or real estate intermediary), the investor will check:

1. Whether you have appointed a person responsible for AML.
2. Whether you have implemented KYC procedures and a risk assessment.
3. Whether you provide training for your team.
4. Whether you monitor transactions and report suspicious activity.

The absence of these elements constitutes a breach of the AML Act – with penalties including fines and the publication of information about the penalty in the Ministry of Finance’s Public Information Bulletin.

Commercial agreements and liabilities

1. Change-of-control clauses – agreements with customers or suppliers that give the other party the right to terminate the agreement if ownership changes.
2. Unfulfilled obligations – overdue deliveries, uncompleted orders, and unresolved complaints.
3. Ongoing disputes – both judicial and out-of-court.
4. Contingent liabilities – guarantees, sureties, and agreements containing penalty clauses.

Grant compliance

If your company has received grants from PARP, NCBR, or EU funds:

1. Compliance with the terms of the grant agreement – eligibility of costs and achievement of result indicators.
2. De minimis aid declarations – exceeding the limits may require the grant to be repaid.
3. Settlement of tax reliefs (R&D, IP Box) – correctness of the documentation.

How much formal deficiencies cost – expert estimates

Polish public sources contain no aggregated data on how often formal deficiencies reduce transaction valuations. The prices of private transactions are confidential, and there is no targeted empirical research. The ranges below are expert estimates based on market practice – they are not statistical data.

Adjustment mechanisms vary: from reducing the valuation multiple and holding part of the price in escrow to requiring additional representations and warranties that burden the seller. In extreme cases – withdrawal from the transaction, or a “valuation reduction to zero”.

Three categories of findings in a light DD report

A light due diligence report uses the language of decisions, priorities, and business implications – not just legal provisions. Findings are divided into three categories:

This division allows the management board to make decisions based on specific data – rather than reacting to a “general legal risk”.

When light DD is not enough

Light due diligence has its limits. It will not replace a full review when:

1. The transaction involves a large amount (more than several million PLN) and the investor requires full documentation.
2. The company has a complex ownership structure – groups of companies, subsidiaries, or foreign entities. Since 2024, the Polish Commercial Companies Code has included provisions on the law governing groups of companies (Journal of Laws 2024, item 18, Division IV), which create additional reporting and liability obligations.
3. The company has undergone a conversion – e.g. from a civil law partnership into a limited liability company. In such a case, the partners are jointly and severally liable for obligations incurred before the conversion for 3 years. The investor must verify whether that period has expired.
4. High-value court disputes are ongoing.
5. The company operates in a regulated industry (fintech, medtech, energy) with extensive compliance requirements.

In these cases, light DD serves as an initial filter – showing where a deeper review is required.

How to prepare your company for a review – what to do before light DD

The better prepared your documents are, the faster and less expensive the review will be. Here is the recommended order of steps:

1. Collect corporate documents: a current extract from the National Court Register (KRS), the articles of association, shareholders’ meeting resolutions from the last 3 years, and powers of attorney.
2. Prepare a list of agreements containing change-of-control clauses – especially agreements with customers generating more than 10% of revenue.
3. Compile agreements with developers, designers, and contractors – paying particular attention to copyright assignment clauses.
4. Review your GDPR documentation: ROPA, data processing agreements, and the privacy policy.
5. Prepare a breakdown of engagement arrangements – how many people are employed under employment agreements, how many work on B2B contracts, and how many under contracts of mandate.
6. Collect certificates from the Social Insurance Institution and the Tax Office confirming that there are no outstanding payments.
7. Put your grant documentation in order – if you have received any grants.

If some documents do not exist or are outdated, that is itself a finding that will be included in the report. It is better to know this before meeting the investor than during their due diligence.

New regulations expanding the scope of due diligence in 2026

Three recent legal changes affect what investors verify:

Whistleblower Protection Act (Journal of Laws 2024, item 928, effective from 25 September 2024) – companies employing at least 50 people must have an internal reporting procedure in place. The absence of such a procedure constitutes a breach of the Act. Whistleblowers are protected from the moment they make a report, and the burden of proof in disputes concerning retaliation rests with the employer.

Law governing groups of companies in the Polish Commercial Companies Code (Journal of Laws 2024, item 18, Division IV) – if your company is part of a group of companies, the investor will verify additional reporting obligations and the mechanisms governing the parent company’s liability toward its subsidiary.

Amendment to the AML Act (draft version 2.0 of February 2026, with full implementation of the AML/CFT package planned by 10 July 2027) – expansion of the obligations imposed on obliged institutions and changes to access to the Central Register of Beneficial Owners (a “legitimate interest” requirement is planned).

Each of these changes means additional questions from the investor and additional documents to prepare.

We can help you with this

Minor formal oversights most often come to light at the worst possible time: during negotiations, investor due diligence, or after the transaction. Light DD allows you to identify and fix them while you still have time and control over the situation.

Our support includes:

1. Documentation review across 6-7 legal areas – from corporate law through IP and GDPR to employment law and AML.
2. Prioritized report – dividing findings into critical, important, and administrative categories, with estimates of their financial and organizational consequences.
3. Remediation recommendations – a specific list of actions with deadlines, not general advice.
4. Deal room preparation – an organized document repository ready to be shared with the investor or buyer.
5. Negotiation support – assistance with drafting representations and warranties and reviewing transaction terms.

We work with founders, management boards, and CTOs of technology companies. We understand the pace of startups, the pressure of funding rounds, and the need to make decisions based on incomplete data. We provide recommendations that can be implemented – not reports that “end up in a drawer”.

Check before the investor asks

Light due diligence is not a formality. It is a tool that gives you control over the narrative in negotiations. It allows you to fix deal-breakers before they become arguments for reducing the valuation. It allows you to prepare documents before the investor requests them. And it allows you to enter the transaction from a position of order, not chaos.

If you are planning a funding round, a share sale, or bringing in a strategic partner – contact us. We will conduct a quick legal review of your company and show you what needs to be fixed before the other party asks about it.

Frequently asked questions

How long does light due diligence take, and how much work does it require on my part?

For a startup employing 5-20 people, the review typically takes 5-10 business days. Your role is to prepare the documents – the better organized they are, the faster the analysis will be. If some documents do not exist, that is itself a finding that will be included in the report.

Is light DD enough to sign a term sheet safely?

Light DD allows you to identify deal-breakers and fix them before signing the term sheet. After the term sheet is signed, the investor will usually conduct their own full due diligence – but if you put your documentation in order beforehand, their review will be quicker and will not uncover any unpleasant surprises.

Which deficiencies most often block transactions involving technology startups?

The three most common deal-breakers are: no copyright assignments for code from developers and contractors, outdated or unsuitable articles of association (without investor clauses), and disorganized engagement models (B2B arrangements with the characteristics of an employment relationship and no analysis of the reclassification risk).

Can I carry out such a review internally?

You can prepare the documents and conduct a preliminary inventory. However, assessing legal risks – for example, whether your B2B contracts have the characteristics of an employment relationship or whether your copyright assignment clauses are effective – requires transaction experience. An external perspective also helps you avoid “blind spots” – problems you do not see because you deal with them every day.

When is light DD not enough, making a full review necessary?

When the transaction involves a large amount, the company has a complex ownership structure or is part of a group of companies, has converted from another legal form, operates in a regulated industry, or is involved in ongoing court disputes. In these cases, light DD serves as an initial filter – showing where a deeper review is required.

What does the report look like – will I receive a specific list of things to do?

The report divides findings into three categories: critical (fix immediately), important (put in order before signing the agreement), and administrative (plan for later). Each finding includes a description of the risk, an estimate of the consequences, and a recommended action. It is a decision-making document, not an academic analysis.