Free resource · For investors
Portfolio Company Legal Health Check
Nineteen questions to ask about each company you have backed, and the red flag behind each one.
Jason Acevedo | Updated October 13, 2026
Most legal problems in a portfolio company are visible a year before they cost anything, and they are visible to the investor who asks. This is the list of questions. Run it once per company, ideally against the quarterly update or before a follow-on, and rate each answer from 1 (the red flag describes the company today) to 5 (clean and documented). Anything rated 1 or 2 is worth a conversation with the founder now rather than with acquirer's counsel later.
Your answers stay on this page and are not saved or sent anywhere. For a record across the portfolio, use the spreadsheet, which has the same questions plus recommended action and last-reviewed columns.
0 of 20 rated · Health score -- / 5 · 0 red flags (rated 1 or 2)
Corporate Governance
The questions whose answers you are entitled to under your own information rights. If you cannot answer them, that is the first finding.
| Question | Red flag | Rating |
|---|---|---|
| Is the board meeting regularly with documented minutes? | No board meetings in 6+ months. No minutes on file. | |
| Are D&O insurance policies current and adequate? | Lapsed coverage. Policy limits below what the stage calls for. | |
| Is the company in good standing in all operating jurisdictions? | Delinquent franchise taxes. Administrative dissolution risk. | |
| Are information rights being fulfilled (financials, cap table)? | No quarterly updates. Cap table not shared. |
Capitalization
Your ownership is only as real as the documents behind it.
| Question | Red flag | Rating |
|---|---|---|
| Is the cap table accurate and reconciled to the legal documents? | Cap table does not match the charter. SAFEs missing from it. | |
| Are all equity grants properly authorized and documented? | Options granted without board approval. Missing stock purchase agreements. | |
| Is the option pool sized appropriately for hiring needs? | Pool depleted. Needs an increase before the next financing, which comes out of someone's ownership. | |
| Are 409A valuations current (within 12 months)? | Expired 409A. Options being granted at stale strike prices. |
IP / Technology
The company's value is the IP. These three questions decide whether it actually owns it and can sell it.
| Question | Red flag | Rating |
|---|---|---|
| Are all IP assignments in place for founders, employees, and contractors? | Missing assignments. Founder IP never transferred to the company. | |
| Has the company conducted an open source audit? | No open source policy. Copyleft licenses inside proprietary code. | |
| Are key technology licenses transferable in an acquisition? | Change-of-control provisions that could block an exit. |
Employment / People
Misclassification and missing paper are cheap to fix at ten people and expensive at fifty.
| Question | Red flag | Rating |
|---|---|---|
| Are employment agreements, CIIAs, and NDAs in place for the whole team? | Missing agreements for early employees. No CIIA for contractors. | |
| Is the company compliant with labor laws in all operating states? | Misclassified contractors. Multi-state hiring without registration. | |
| Are equity compensation plans properly administered? | Late option grants. Missing 83(b) elections. |
Material Contracts
What matters here is what happens to the contracts on the day the company is sold.
| Question | Red flag | Rating |
|---|---|---|
| Are key customer contracts assignable in an acquisition? | Anti-assignment clauses in material customer agreements. | |
| Are there contracts with change-of-control provisions? | Vendor or customer contracts that terminate on a change of control. | |
| Is the company meeting all material contractual obligations? | Breach risk on SLA commitments. Unfulfilled milestones. |
Litigation / Regulatory
The category where founders most often know something you do not.
| Question | Red flag | Rating |
|---|---|---|
| Is there any pending or threatened litigation? | Undisclosed threats. IP infringement claims. | |
| Is the company compliant with applicable regulations? | Missing licenses. Privacy non-compliance (GDPR, CCPA, state laws). | |
| Are there any unresolved tax issues? | Unpaid payroll taxes. State tax nexus never addressed. |
How to read the score
A health score of 4 or better with no red flags is a company you can take to a follow-on or an acquirer without surprises. Between 3 and 4 is typical for a seed-stage company a year in; the red flags tell you what to raise at the next board meeting. Below 3, or three or more red flags, usually means the company has outgrown its legal setup, and the fix is a short cleanup project with counsel rather than a series of one-off conversations.
Where to go next
If the Capitalization answers are the weak ones, send the founder the Cap Table Audit Checklist. If the company is heading into a round, the Due Diligence Readiness Scorecard is the founder-side version of this exercise. What Your Investor's Lawyer Is Actually Looking For explains why these questions are the ones that matter.
This health check is general information, not legal advice, and using it does not create an attorney-client relationship. If it surfaces something in your portfolio that needs a second set of eyes, get in touch.