Due diligence documents include those concerning a company’s assets operating, liabilities and assets. The review is usually conducted prior to any merger, acquisition, or any other business transaction and is crucial to determining the worth of the business. This review assists in identifying potential risks by looking over contracts or agreements, as well as any restrictions or encumbrances imposed on assets.
In addition, to scrutinizing the physical assets of the target company, lawyers will often examine financial documents such as state and federal tax returns and bank statements as well as credit reports. They will also examine the company’s payroll, employment benefits, contracts and the structure of the organization. Legal due diligence is a process that can last anywhere from 30 to 60 days. The duration of the process can increase with more complex transactions.
Attorneys also will review regulatory issues, including issues with compliance and antitrust analysis(opens in new tab). They can also look at the www.medicaldataroom.com/how-to-prepare-your-legal-documents-for-due-diligence/ current legal landscape of the company and any litigation involving the company in question or its officers.
The most important element of an investigation of due diligence in law is determining the potential liability for an transaction. It is common for lawyers to suggest obtaining representations and warranties and liability insurance(opens in new tab) to protect the purchase. This is especially important for buyers who are not acquainted with the target company and its background. It is a way to protect the seller from false representations or claims made by the buyer. In addition lawyers can examine any documentation related to the company’s policies for employees such as golden parachutes and severance packages(opens in new tab) that could be affected by changes in ownership.
