Legal documents for due diligence include documents that pertain to the company’s assets, business operations and potential liabilities. This review is typically conducted before a merger or acquisition and is crucial in determining value for the company. This review helps to identify the potential risks by reviewing contracts and agreements as well as any restrictions or encumbrances imposed on assets.
Lawyers will also review financial data, including federal and state tax returns, bank accounts, and credit reports, in addition to the physical assets. They also examine the company’s contracts, employment benefits and payroll as well as organizational structure. Legal due diligence is a procedure which can take anywhere from 30 to 60 days. The length of time could increase in more complicated transactions.
Attorneys will also examine regulatory issues, including concerns about compliance and antitrust analysis(opens in new tab). They may also examine the current legal landscape of the company and any litigation involving the company in question or its officers.
Assessing the potential liability of a transaction is the most crucial aspect of an investigation into legal diligence. It is typical for lawyers to advise obtaining representations and warranties and liability insurance(opens in new tab) to cover the purchase. This is crucial, particularly when the buyer is not familiar with the background of the company in question. It can protect the seller from misleading claims or statements made by the buyer. In addition, lawyers could review any documentation of the company’s employee policies, such as severance packages and golden parachutes(opens in a new tab), which could be affected by a change of ownership.
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