Legal Documents for Due Diligence
Due diligence documents contain information that pertain to a company’s assets operating, liabilities and assets. This review is typically performed before a merger or acquisition and is essential in determining the value of the company. This review assists in identifying potential risks by looking over contracts and agreements as well as any restrictions or encumbrances imposed on assets.
Lawyers will also look at financial data, including federal and State tax returns, bank accounts, and credit reports as well as physical assets. They will also look at the company’s payroll and employment benefits, contracts, and organizational structure. Legal due diligence is a process that can take between 30 and 60 days. In more complex deals the duration can increase dramatically.
Attorneys will also be looking at regulatory issues, such as any antitrust concerns or compliance concerns analyses(opens in a new tab). They can also examine the legal structure of the company, including any litigation involving the company’s officers or employees.
Assessing the potential liability of an investment is the most important element of a legal diligence investigation. Attorneys generally recommend purchasing representations and warranties insurance (opens in the new tab) to cover the purchase. This is particularly important when the buyer isn’t familiar with the company of interest and its background. It is a way to protect the seller from false claims or representations made by the buyer. The last but not least, lawyers can review any documents pertaining to the company’s policies for employees like golden parachutes, severance packages(opens in a new tab) that could be affected by changes in ownership.
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