Disclosure schedule

The document in which a seller lists the exceptions to what they are formally promising - the litigation, the defaults, the contracts that are not on standard terms.

Example

A schedule stating there is no litigation, against a public register showing a claim filed nine months earlier.

Important

It is read for what is missing, not for what is on it. An item omitted from a schedule that the seller could not plausibly have forgotten is a finding about the seller, whatever the item is worth.

Related terms

• Representations and warranties — The statements of fact a seller formally makes in a transaction document, which the buyer is entitled to rely on and can claim against if untrue.
• Management representation — A statement made by the people selling or running the thing you are examining, whether spoken, written in a deck, or set out in a document they prepared.
• Deal killer — An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.

Lessons that explain it

• The information request, and what a refusal tells you — What you ask for, and the order you ask for it in, determines what you learn. The response to the request is frequently more informative than the documents themselves. (13 min)
• Messy books are common; hidden liabilities are the real risk — Early companies often have informal accounting. Diligence separates harmless untidiness from problems that matter: unpaid taxes, related-party transactions, commingled spending and unrecorded obligations. (10 min)
• First confirm the company you are investing in is the one that owns the business — Legal diligence starts with structure: where the company is incorporated, whether it is in good standing, which entity holds the customers, contracts and IP, and whether the shares being offered can be issued. (10 min)
• The liabilities that are not on the balance sheet — Legal diligence looks for obligations the accounts may not show: workers who may legally be employees, pending or threatened litigation, and regulatory licences or rules the business depends on. (10 min)
• Appraising one business: verify the earnings before you price anything else — Seven checks on one specific listing, in an order that puts verifying the earnings ahead of everything the earnings are used to justify - because every other number in the deal is built on top of a figure the seller had every reason to shape. (13 min)

All 578 terms in the Investing glossary