Legal Documents for Due Diligence

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Due diligence documents are those concerning a company’s assets operating, liabilities and assets. This type of review is typically conducted prior to a merger or acquisition, or any other business transaction and is crucial in determining the value of the business. It also assists in understanding the potential risks associated with the event of a deal by looking over agreements, contracts and any limitations or encumbrances to assets.

In addition to examining the physical assets of a targeted business, lawyers frequently examine financial documents like state and federal tax returns along with bank statements and credit reports. They will also review the company’s contracts, employee benefits such as payroll and organizational structure. Legal due diligence is a procedure which can take anywhere from 30 to 60 days. In more complex transactions, the length of time can increase dramatically.

Attorneys also will look into the regulatory aspects, such as any antitrust or compliance issues, or analyses(opens in a new tab). They can also look at the current legal environment of the company including any litigation that involves the company in question or its officers.

Assessing the potential liability of an investment is the most crucial aspect of an investigation into legal diligence. Attorneys generally recommend you purchase representations and warranties insurance (opens in a new tab) to cover the purchase. This is important, especially when the buyer is not familiar with the target company’s history. It protects the seller in case of incorrect claims or representations made by the buyer. In addition, lawyers could examine any documentation of the company’s employee policies for example, severance agreements and golden parachutes(opens in new tab), which could be affected by a change of ownership.