Legal documents for due diligence are documents that pertain to a company’s assets business operations, and any potential liabilities. The review is usually conducted before a merger, acquisition or other type of business transaction and is essential in determining the value of the business. It also helps to understand the potential risks associated with an acquisition by reviewing contracts, agreements, and any encumbrances or restrictions on assets.
In addition to looking at the physical assets of a target business, lawyers frequently look at financial information like state and federal tax returns along with bank statements and credit reports. They will also look at the company’s contracts, employment benefits and payroll, as well as the organizational structure. Legal due diligence is a procedure which can take anywhere from 30 to 60 days. The length of time may increase in more complex transactions.
Attorneys also will review regulatory issues, including compliance concerns as well as antitrust analysis(opens in new tab). They might also analyze the current legal landscape of the company, which includes any litigation involving the company’s officers.
The most important element of an investigation of due diligence in law is assessing the potential liability for the transaction. Attorneys generally recommend purchasing representations and warranties insurance (opens in an entirely new tab) for the purchase. This is essential, particularly when the buyer is not familiar with the history of the company they are purchasing. It will protect the seller from inaccurate assertions or claims made by the buyer. Also, lawyers may review any documentation of the policies of the company’s employees like severance plans and golden parachutes(opens in a new tab) that could be affected by a change of ownership.
