A legal due diligence goes beyond rolling the tires of a car. It is a detailed investigation that involves lawyers and CPAs to confirm documentation and the facts. It involves a review of various areas, such as a legal review which covers contracts, litigation liabilities, and intellectual property as well as corporate records and compliance with regulatory requirements, a financial review, which includes accounting policies, financial statements and tax returns. It also involves an operational review of the business’s management, organizational structure, sales, products, marketing facilities and equipment supply chain, customer relations sales and distribution channels, and competition.
Legal due diligence can be a long-winded process, depending on level of complexity of the company as well as the magnitude of the transaction. This is especially relevant for large public companies with virtual piles of documents that lawyers have to sort through. As a result, many legal departments have started to use technology to streamline and speed up the process, for example the document review platform that integrates AI tools.
Before starting the legal due diligence process, you must establish the framework and purpose for the investigation. It is helpful to develop an outline of the key areas to be covered and to ensure that the legal team has a consensus on a plan of action with the business owner. It is also important to determine which areas require expert input from the firm. A legal due diligence check on an IP holding company, for instance, may include questions by an expert in intellectual property to determine if the firm has any patents that are important or other intellectual property rights and if there are any cases of infringement currently or in the pipeline.
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