.

Legal Due Diligence, Legal Risk Analysis And Legal

Outsourci

Legal Due Diligence

In a business, whenever a buyer buys a company, he automatically buys the legal reputation of
the company. Hence, the buyer needs to be aware about the legal state of the company and the
possible legal risks the company might face in the near future. So, comes the legal due diligence
which can be described as a process of complete investigation, collection and analyzation of the
legal risks of the particular company.

The buyer talks to the associates and customers, go through the documents and agreements,
understand legal obligations of the company and ensure about legal potentials of investors as
well as the company, to make up his mind before making the crucial decision of proceeding
with the transaction.

Legal due diligence plays vital role in many areas which include: Business Transactions and
deals, Merger and Acquisitions, Assessment of Supplier Quality, Business and Company law
affairs, Commercial Property Dealings, Capital Markets, Commercial and Corporate Finance,
Hedge Funds, Sale of Intellectual Property.

Objectives And Significance Of Legal Due Diligence

The goal of Legal Due Diligence is to understand the current status as well as the future
consequences of the deal or agreement.

The main objectives of this process are:

 To assess the working conditions and capabilities of the company, employees,

associates as well as customers
 To reveal the hidden legal risks, assess them and look for viable solutions.
 To get the idea of the expectations from the company and how it serves them.
 To have a greater look into all the agreements and contracts signed, know about the
partners and understand other obligations.
 To draft a good negotiating agreement after getting complete knowledge.

Thus, Legal due diligence is must before acquiring a company because the buyer must know in
what is he investing and with what he will be rewarded.
Legal Due Diligence Process And Report
A preliminary evaluation is done on basis of the areas and data that needs to be collected. Then
a managing team is made, including all the members need to keep a track of the course, which
usually comprises of a representor of the acquirer, a legal counsel, a statistics expert, technical
consultants and bankers and other advisors as per the requirement. Then a detailed
investigation is processed in each of the area with the expertise and the data is collected and
hence may emerge the issues of facts and figures, liabilities, weaker management and control,
non-compliance with some legal provisions. All the information is disclosed by the target
company and a final report is made by the team.

The report contains all the information of the company, its assets, accounts, shares and
capitals, contracts, taxation, insurance, exports and imports, obligations and liabilities, legal
proceedings and compliance and non-compliance with the statutes and provisions, third party
rights, its shareholders, customers etc.

After the report is made all the data is analyzed the buyer takes opinion and advice of the
lawyer and other consultants and hence finals the deal accordingly.

Conclusion

Diligence must be taken while this process as well as there are some common mistakes like not having
enough resources or appropriate team, biasness, incomplete reports, hidden data etc. and hence this
may disrupt the actual result and may cause loss in future which defeats the purpose of the process.
Thus, a proper Legal Due Diligence is must to ensure a better yield and escape the legal risks while
buying a company and it must be done under guidance of a good lawyer.