Due diligence documents are those related to a company’s assets operations, liabilities and assets. This review is typically performed prior to a merger, acquisition or other business deal and is crucial to determining the value of the company. This review helps to identify possible risks by examining contracts or agreements, as well as any restrictions or encumbrances on assets.
In addition to looking at the physical assets of a potential firm, lawyers often examine financial records like state and federal tax returns as well as bank statements and credit reports. They will also review the company’s contracts, employee benefits, payroll and organizational structure. Legal due diligence could take between 30 and 60 days. The timeframe could increase in more complex transactions.
Attorneys will also be looking at regulatory issues, such as compliance concerns or antitrust analyses(opens in a new tab). They might also analyze the legal environment of the company, which includes any litigation that involves the target company or officers.
Analyzing the potential risk of a transaction is the most important element of an investigation into legal diligence. It is common for attorneys to recommend getting representations and warranties and liability insurance(opens find in a new tab) to cover the purchase. This is particularly important in the event that the buyer isn’t familiar with the background of the company in question. It could protect the seller in the event of inaccurate representations or claims made by the buyer. Last but not least lawyers can scrutinize any documents pertaining to the company’s policies for employees such as golden parachutes and severance packages(opens in the new tab) which could be affected by changes in ownership.