{"id":4843,"date":"2020-03-13T17:52:34","date_gmt":"2020-03-13T12:22:34","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=4843"},"modified":"2021-04-24T14:24:43","modified_gmt":"2021-04-24T08:54:43","slug":"legal-due-diligence","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/","title":{"rendered":"Legal Due Diligence: A Complete Checklist"},"content":{"rendered":"\n<p class=\"has-drop-cap\">In today\u2019s corporate world, where a ton of transactions takes place at high speed, the degree of uncertainty achieves its peak form. As in our country, no one knows how our government policies will change and what will be the effect of this change on the Company. Hence, to avoid this, every Company should conduct Legal Due Diligence. The Company should always be prepared for any surprises before entering into any business. In this article, we will discuss the scope, objectives, advantages and process followed while conducting Legal Due Diligence in Company. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/#What_do_you_mean_by_Legal_Due_Diligence\" >What do you mean by Legal Due Diligence? &nbsp;&nbsp;&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/#What_are_the_Areas_Covered_in_Legal_Due_Diligence\" >What are the Areas Covered in Legal Due Diligence?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/#What_is_the_Process_followed_to_Conduct_Legal_Due_Diligence_in_Company\" >What is the Process followed to Conduct Legal Due Diligence in Company?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/#What_are_the_Advantages_of_Legal_Due_Diligence\" >What are the Advantages of Legal Due Diligence?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/legal-due-diligence\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_do_you_mean_by_Legal_Due_Diligence\"><\/span>What do you mean by Legal Due Diligence? &nbsp;&nbsp;&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Legal Due Diligence is generally performed when someone want to buy or sell a Company. Sometimes, it is also conducted on purpose as a routine check of legal affairs in the Company. Legal Due Diligence consists an examination of all, or specific parts, of all legal affairs of target Company with a view to discover any legal risks and provide the buyer with an extensive insight into Company\u2019s legal matters. The bargaining position of the buyer is improved while conducting <a href=\"https:\/\/corpbiz.io\/due-diligence\"><strong>Legal Due Diligence<\/strong><\/a> and this lead to an assurance that necessary precautions are taken regarding the business to be entered.  <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Areas_Covered_in_Legal_Due_Diligence\"><\/span>What are the Areas Covered in Legal Due Diligence?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>The Legal Due Diligence process, when conducted in Company, investigates the following areas:<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" width=\"661\" height=\"562\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-34.png\" alt=\"Areas Covered in Legal Due Diligence\" class=\"wp-image-4862\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-34.png 661w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-34-300x255.png 300w\" sizes=\"(max-width: 661px) 100vw, 661px\" \/><\/figure>\n\n\n\n<ul><li><strong>Intellectual Property<\/strong><\/li><\/ul>\n\n\n\n<p>The\nIntellectual Property includes patent, trademark, trade secrets and copyright. The\nanalysis of licenses, contracts and pending litigations of Target Company\nrelated to Intellectual Property is done.&nbsp;&nbsp;&nbsp;\n<\/p>\n\n\n\n<ul><li><strong>Corporate and Legal Structure<\/strong><\/li><\/ul>\n\n\n\n<p>The acquirer should understand the structure of the\nTarget Company. The Memorandum of Association (MoA) and Articles of Association\n(AoA) are analyzed to get information regarding Corporate and Legal Structure\nof the Target Company. &nbsp;<\/p>\n\n\n\n<ul><li><strong>Commercial Contracts<\/strong><\/li><\/ul>\n\n\n\n<p>The\nCommercial Contracts of Target Company is analyzed to identify the risks\ninvolved in these contracts. Commercial Contracts includes vendor contracts,\nservice contracts, rental agreements, etc.&nbsp;\n<\/p>\n\n\n\n<ul><li><strong>Employee Contracts<\/strong><\/li><\/ul>\n\n\n\n<p>To\nunderstand the risks and liabilities towards the employees, the Employee\nContracts of the Target Company are analyzed. Employee Contracts include wages\nand salary, employment terms, employment duration, pension plans, etc. <\/p>\n\n\n\n<ul><li><strong>Tax Liability<\/strong><\/li><\/ul>\n\n\n\n<p>The deferred <strong><em>Tax Liabilities<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Tax\">[1]<\/a><\/sup> of a Target Company are analyzed to look into any discrepancies related to it. If there is any liability related to tax liabilities, then in future there will be enormous liabilities for the acquirer.&nbsp; <\/p>\n\n\n\n<ul><li><strong>Regulatory Compliance<\/strong><\/li><\/ul>\n\n\n\n<p>The\nTarget Company should be doing everything in adherence to the law and\nRegulatory Compliance of the Company.<\/p>\n\n\n\n<ul><li><strong>Litigations<\/strong><\/li><\/ul>\n\n\n\n<p>The\nLitigations of the Target Company, whether past or current all are looked into.\nEven the future Litigations are also being looked into to avoid any problem in\nfuture. Litigations can come through employees, customers, vendors and\ngovernment.<\/p>\n\n\n\n<ul><li><strong>Health and Safety Standards<\/strong><\/li><\/ul>\n\n\n\n<p>The\ncompliance with Health and Safety Standards of Target Company is checked. The\nworkplaces these days should be secure for working. The employees are more\nconcerned about their health. There should be a check on the safety gear and\nproper ventilation in the office of the Target Company.&nbsp;&nbsp; <\/p>\n\n\n\n<ul><li><strong>Environment Laws<\/strong><\/li><\/ul>\n\n\n\n<p>Compliance with environmental laws has become a vital issue nowadays. The acquirer should check for any matter related to non-adherence of Environment Law.  <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/financial-due-diligence\/\">Financial Due Diligence: A Complete Checklist<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Process_followed_to_Conduct_Legal_Due_Diligence_in_Company\"><\/span>What is the Process followed to Conduct Legal Due Diligence in Company?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Legal Due Diligence process takes place in three stages. The three steps are as follows:<\/em><\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" width=\"580\" height=\"477\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-31.png\" alt=\"Legal Due Diligence \" class=\"wp-image-4845\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-31.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-31-300x247.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure>\n\n\n\n<ul><li><strong>Preparation<\/strong><\/li><\/ul>\n\n\n\n<p>The\ngoals and priorities are set to conduct Legal Due Diligence in the Company. There\nis a number of small goals and one central goal to analyze. Sometimes, a\nprofessional is hired to plan for the process of investigation. <\/p>\n\n\n\n<ul><li><strong>Analysis<\/strong><\/li><\/ul>\n\n\n\n<p>While\nthe investigation is going on the professionals are hired by the acquirer,\ncollect facts and documents related to the Target Company. The analysis of\nthese facts and documents will help the professionals to analyze whether the\npurchase of Target Company will be positive or negative for the acquirer.<\/p>\n\n\n\n<p>The\nlegal documents, which includes the licenses, permits, incorporation document,\nshareholders warrants all these will be investigated. After this, the process\nof investigations will move on to the next step, where all the litigations\nconcerning the Target Company will be investigated. The assets and liabilities\nof the Target Company should be investigated. The current salaries and the list\nof past and present employees should be appropriately scrutinized. <\/p>\n\n\n\n<p>The\nduration of this process depends on the size of the Company. It can take from a\nfew days to several months to complete this process depending on the size of\nthe Company. Once, the acquirer is satisfied thoroughly and has analyzed all\nthe loopholes of the Target Company. The acquirer should complete the process\nof Legal Due Diligence before entering into any initial agreement with the\nTarget Company.<\/p>\n\n\n\n<ul><li><strong>Results<\/strong><\/li><\/ul>\n\n\n\n<p>The professionals present the results at the end of the investigation. Results should be presented in the most concise way possible. The most important discoveries should be pointed out in the results. The results after the examination may be provided in written format or verbal conversation. The acquirer should convey to the professionals about his\/her priorities and expectations from the deal. The results reports should highlight the main concerns of the acquirer by keeping them as a priority. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Advantages_of_Legal_Due_Diligence\"><\/span>What are the Advantages of Legal Due Diligence? <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>The main advantages of Legal Due Diligence is as follows:<\/strong><\/em><\/p>\n\n\n\n<ul><li><strong>Understand the Target Company<\/strong><\/li><\/ul>\n\n\n\n<p>Whenever Due Diligence is conducted in the Company, all the legal documents are scrutinized. This helps in understanding the Target Company and its operations before the purchase.<\/p>\n\n\n\n<ul><li><strong>Helps in Determination of Fair Price<\/strong><\/li><\/ul>\n\n\n\n<p>While\nanalyzing the structural, financial and operational aspects of Target Company,\nthe acquirer finds out about all the pending litigations, employee factor, labor\nagreements, intellectual property details, etc. of the Company. This analysis\ngives the acquirer a strong base to negotiate with the Target Company. Hence,\nthis will help in determining a fair price for the acquirer.<\/p>\n\n\n\n<ul><li><strong>Identification of Future Legal Risks<\/strong><\/li><\/ul>\n\n\n\n<p> The pending litigations of the Target Company will cause a major problem for the acquirer. These litigations will lead to a negative value of the Target Company after the takeover by the acquirer. The process will help identify future risks today and eliminate them. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> It is becoming more prominent these days to seek extra protection while entering into any new business. Legal Due Diligence is an investigation of the business of Company that whether the Company will be worthwhile or not in future. It helps you take an informed decision regarding the Company and also provides an insight into the new Company. We at\u00a0<a href=\"https:\/\/corpbiz.io\/\"><strong>Corpbiz<\/strong><\/a>\u00a0have competent and skilful professionals to help you in the process of Legal Due Diligence. Our professional will direct you and aid you in getting through the process. Our professionals will plan faultlessly and will make sure the successful completion of the process. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/online-due-diligence-object-scope-and-types\/\">Due Diligence: A Complete Run-Through<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In today\u2019s corporate world, where a ton of transactions takes place at high speed, the degree of uncertainty achieves its peak form. As in our country, no one knows how our government policies will change and what will be the effect of this change on the Company. Hence, to avoid this, every Company should conduct [&hellip;]<\/p>\n","protected":false},"author":16,"featured_media":4846,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[375],"tags":[398],"acf":{"service_id":"76"},"authorName":"Sakshi Sharda","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/02\/sakshi-sharda.jpg","authorDescription":"Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.","postViews":10590,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4843"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/16"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=4843"}],"version-history":[{"count":17,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4843\/revisions"}],"predecessor-version":[{"id":29348,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/4843\/revisions\/29348"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/4846"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=4843"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=4843"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=4843"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}