- Business in Poland -

Vendor Due Diligence: How to Prepare Your Company for Sale and Defend the Valuation

Vendor due diligence is a legal review (often also tax and financial) of a company or its shares carried out on the seller’s instructions before the transaction. Its purpose is to identify and organise risks, prepare materials for potential buyers, and structure the process so as to reduce price renegotiations and limit the scope of representations and warranties (reps & warranties). In practice, it is sell-side due diligence that helps the seller control the deal narrative and shorten the buyer’s review phase.

Vendor due diligence: what it is and when it makes sense

In the classic model, due diligence is conducted by the buyer. The seller responds to questions and provides documents on an “ad hoc” basis, which often results in last-minute discoveries and the creation of a list of reservations (so-called red flags). Vendor due diligence reverses this dynamic: risks are identified earlier, and documentation is placed in a well-organised seller’s data room.

Vendor due diligence is particularly valuable when:

• the sale involves a larger organisation (many contracts, real estate, IP, subsidiaries),
• the seller wants to run a competitive process (multiple bidders),
• speed matters (tight timeline, external financing),
• there are historic corporate or employment “loose ends” that can be fixed before launching the process.

How to prepare a company for sale: goals that genuinely impact valuation

From a valuation perspective, “how to increase a company’s valuation legally before a sale” rarely comes down to cosmetic improvements. Most often, it is about reducing the risk discount and limiting buyer-protection mechanisms (escrow, price retention/holdback, extensive indemnities). In practice, vendor due diligence helps to:

• eliminate or reduce risks that justify a price reduction,
• prepare consistent materials to manage buyer Q&A,
• plan disclosures to the share/stock purchase agreement in advance.

Preparing for a share sale: key areas of review

The scope of sell-side due diligence is tailored to the industry and structure, but in Polish transactions similar “minefields” tend to recur. In sell-side projects, KKZ lawyers most often put in order:

1) Corporate governance and legal title

The review typically covers, among other things, resolutions, the validity of management/supervisory appointments, shareholders’ agreements, pre-emption rights and corporate consents, as well as the authority of commercial proxies and attorneys-in-fact. The key legal framework includes the Polish Commercial Companies Code and the rules governing the National Court Register (KRS) [1], [2].

2) Commercial contracts and revenue concentration

The analysis focuses on change of control clauses, assignment restrictions, contractual penalties, termination “without cause” provisions, counterparty audit rights and SLAs. In many sectors, these provisions frequently trigger renegotiations of transaction terms (including price), as they affect cash-flow stability.

3) Employees, management and dispute risk

Key areas include forms of engagement, non-compete arrangements, transfer of copyright, working time records, overtime settlements and HR policies. Compliance is assessed, among other things, against the Polish Labour Code [3]. In technology companies, a common red flag is unclear title to code and works created by contractors or collaborators.

4) Personal data and cybersecurity

GDPR risks (records of processing, processor agreements, transfers, incidents, marketing lawfulness) are material because they can result in sanctions and notification obligations. The key legal framework includes the GDPR and the Polish Personal Data Protection Act [4], [5].

5) IP, domains, licences, OSS

The review covers trademarks, domains, software licences, open-source usage and licence compliance. Core legal acts include copyright law and industrial property law [6], [7].

6) Compliance and white-collar / business crime issues

Transaction practice increasingly requires verifying corruption indicators, conflicts of interest, procurement irregularities and whistleblowing channels. Depending on the business profile, the review also covers management’s potential criminal liability risks (e.g., breach of trust, document falsification) under the Polish Criminal Code [8]. For companies subject to AML duties (obliged institutions), the compliance audit is based on the Polish AML Act [9].

Organising documents before selling a company: what a “seller’s data room” looks like

A well-prepared seller’s data room is not a file warehouse. It is a structure that mirrors due diligence topics, with version control and short document descriptions. Practical elements that reduce chaos include:

1. a table of contents with folder numbering aligned to the Q&A list,
2. a separate “disclosure” folder for SPA disclosures,
3. a gap register and remediation plan (what can be fixed, what must be disclosed),
4. access control (NDA, roles, download audit trail).

In many processes, it is worth basing the structure on the results of due diligence prepared for the seller, as this accelerates the buyer’s work and reduces repetitive questions.

Red flags: what to fix before the sale and what to disclose

Not every red flag can be “fixed” before closing, but most risks can be managed. Typical steps taken before launching a sale process include:

• Formal clean-up: completing missing resolutions, KRS corrections, tidying up commercial proxies, updating registers.
• Renegotiations: removing change of control clauses or obtaining consents from key counterparties.
• IP clean-up: amendments transferring copyright, clarifying fields of exploitation, domain assignments.
• HR: correcting B2B contracts, aligning compensation models with reality, documenting working time where required.
• GDPR and cyber: completing processor agreements, DPIAs for high-risk processes, incident/breach procedures.

If a risk cannot be removed quickly or requires third-party consents, the better strategy is usually controlled disclosure and precisely limiting the seller’s liability in the agreement. The right tools depend on the industry, negotiating leverage and timeline.

Vendor due diligence and the negotiation process and SPA

Vendor due diligence findings affect key elements of the share/stock purchase agreement:

• the scope of representations and warranties,
• liability caps and thresholds (basket, de minimis),
• pricing mechanisms (closing accounts vs locked box),
• conditions precedent, including counterparty and regulatory consents,
• the content of the disclosure letter.

Conducting sell-side due diligence also makes it possible to assess earlier whether there are risks that could expose management to criminal or reputational liability and whether a parallel forensic review is needed.

This material is for informational purposes only and does not constitute legal advice. For transaction preparation and vendor due diligence, it is advisable to commission a document review and remediation plan; if you need support, please use the contact form: Contact us.

FAQ: Vendor due diligence: how to prepare your company for sale and defend the valuation

1) Vendor due diligence in practice: a report for the buyer or for the seller?

It is a report prepared on the seller’s instructions, usually in a version intended to be shared with buyers (a vendor report) and a working version with broader remediation recommendations.

2) How to prepare a company for sale when corporate documents are missing?

First, the gaps are identified (resolutions, authorities, consents), then remedial actions are implemented and the disclosure path for the SPA is organised. Some gaps can be filled before closing; others require disclosure and a limitation of liability.

3) What should be included in a seller’s data room?

Corporate documents, key contracts, HR materials, IP, GDPR documentation, disputes and administrative decisions, insurance policies, licences, as well as a disclosure register and a Q&A log. The structure should match the due diligence scope.

4) Red flags: what to fix before the sale so they don’t reduce the price?

Most commonly, formal issues (KRS, resolutions), IP (rights transfers), contracts (change of control consents) and HR (tidying up engagement bases) are remedied. Where remediation is not possible, disclosure and liability-limiting mechanisms are used.

5) Does preparing for a share sale always require vendor due diligence?

Not always. For straightforward transactions (few contracts, no disputes, transparent structure), document clean-up and checklists may be sufficient. Vendor due diligence is particularly helpful in competitive processes and where risk exposure is higher.

6) How long does sell-side due diligence take?

Depending on the organisation’s size and the quality of documentation, it usually takes 2 to 6 weeks for the review and recommendations, plus time for remediation and obtaining counterparty consents.

Bibliography

• [1] Act of 15 September 2000 – Polish Commercial Companies Code (consolidated text: Journal of Laws 2024, item 18, as amended).
• [2] Act of 20 August 1997 on the National Court Register (consolidated text: Journal of Laws 2024, item 979, as amended).
• [3] Act of 26 June 1974 – Polish Labour Code (consolidated text: Journal of Laws 2023, item 1465, as amended).
• [4] Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 (GDPR).
• [5] Act of 10 May 2018 on the Protection of Personal Data (consolidated text: Journal of Laws 2019, item 1781).
• [6] Act of 4 February 1994 on Copyright and Related Rights (consolidated text: Journal of Laws 2025, item 24, as amended).
• [7] Act of 30 June 2000 – Industrial Property Law (consolidated text: Journal of Laws 2023, item 1170, as amended).
• [8] Act of 6 June 1997 – Polish Criminal Code (consolidated text: Journal of Laws 2024, item 17, as amended).
• [9] Act of 1 March 2018 on Counteracting Money Laundering and Terrorist Financing (consolidated text: Journal of Laws 2025, item 644, as amended).