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Due Diligence of Company

Due diligence refers to the process of reviewing and documenting legal, financial, and compliance aspects of the company. The investor checks the regulatory and process compliance, specifically before an investment or funding.

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How do you perform Due Diligence of your Company?

Whether it is start-up investments, mergers or hedge funds, it’s good to go for due-diligence. Vakilsearch
helps you in due diligence in 3 simple steps –

We help you review all corporate documents
like Organization Charts, Articles of
Association, Bylaws, and Minute Books.

Step 1

We delegate an efficient and dynamic
team from multiple business functions to complete your due diligence.

Step 2

We share the result and if you have any
further queries about the business, we
help you with that.

Step 3

We help you review all corporate documents like Organization Charts, Articles of Association, Bylaws, and Minute Books.

We delegate an efficient and dynamic team from multiple business functions to complete your due diligence.

We share the result and if you have any further queries about the business, we help you with that.

Due Diligence of the Company

Due Diligence is a process of analysis and research that is done before funding, acquisition, bank loan, etc. Example - Investors conduct due diligence before investing in a company. There are three types of due diligence - legal, financial, and commercial.

It is the activity of concern or investigation that a logical company or person is expected to take before starting into the agreement or contract with another party, or an act with a specific measure of care. It can be a legal responsibility, but the term will more generally apply to voluntary examinations. Due diligence supports the company verifies all considerable facts, background, legal and accounting to avoid becoming blindsided on deals. There are due diligence companies that serve as the process and there are due diligence companies in India that analyze the purpose of the project.

What all are taken into consideration for Due Diligence?

In this method, the legal, financial, and compliance features of the company are usually studied and documented. It is the process of reviewing all the material facts of a deal or a record before a legal contract is approved by both parties. It is not just confined to buyers, even dealers can perform due diligence on the buyer. Due diligence includes accurate, background, legal and accounting controls. This is done to assure that there are no surprises after a deal is arranged.

Due Diligence Service

Benefits of Due Diligence

  • It helps to know the accurate value of the company including the financial situations of last year and years ahead.
  • The investor can comprehend the potential opportunities lying ahead
  • It helps in making informed decisions.

What are the types of Due Diligence?

There are 10 types of due diligence. They are:

  • Administrative Due Diligence
  • Financial Due Diligence
  • Asset Due Diligence
  • Human Resource Due Diligence
  • Environmental Due Diligence
  • Taxes Due Diligence
  • Intellectual property Due Diligence
  • Legal Due Diligence
  • Customer Due Diligence
  • Strategic fit

Checklist for Due Diligence

Corporate structure and general matters such as

  • Incorporation documents, corporate bylaws, organizational charts, lists of all securities holders, stock option agreements, and plans
  • Stockholder and voting arrangements, guarantees, stock recognition rights plans, and relevant grants.
  • Recapitalization or restructuring reports, minutes from all board, shareholder, and executive board meetings since charter; and
  • Agreements associated with any sales or purchases of the company.

Taxes:

  • Federal, state, local, and international income, businesses, and other tax returns registered in the last five years.
  • Correspondence or notice from any international, central, state, or local taxing power;
  • Government reports; tax sharing and transfer pricing arrangements; net producing losses or credit carryforwards;
  • Settlement documents with IRS or other tax authorities; and IRS Form 5500 for 401(K) plans.

Strategic Fit

In any M&A transaction, expected production and strategic fit can be just as valuable as any current profitability.

Intellectual Property

Patents, copyrights, trademarks, domain names, trade secrets, license and licensing agreements, IP litigation, and claims, Liens or encumbrances on the company’s intellectual property.

Material Assets

Inventory stock, real estate, machinery, technology, and analysis and improvement.

Contracts

  • Customer and supplier contracts, schedule of records receivable and payable.
  • Securities, loans and credit agreements, contracts of partnership or joint venture;
  • Material leases, settlement arrangements, non-complete, most preferred nation and exclusivity agreements, Franchising agreements, and professional contracts.

Employees and management

Whether the employees are a key source in a merger or purchase or not, understanding the nature and composition of the company’s management and employee base is often crucial to recognize the value of a company.

Litigation

It’s significant to understand if the deal would include potential legal liabilities or not. Consequently, a lawyer usually examines any pending, threatened or settled litigation arbitration or administrative procedures concerning the target company.

Compliance and Regulatory Matters

Attorneys also evaluate governing and compliance concerns on both including the target company and the deal in general. In particular, lawyers nearly continuously assess the antitrust implications of the proposed transaction.

What is the due diligence process?

  • Analyze the purpose of the project
  • Pre-analysis of the financial business case
  • Have a complete check on the documents
  • A full analysis of the business case and plans
  • Have a note on risk analysis
  • Final offering creation and ongoing monitoring

Due Diligence Report

A due diligence report is furnished as an internal memo to members of the administrative team who are evaluating the transaction and this is a requirement for closing the deal. There can often be several groups associated with making the due diligence document. Companies may bring out the review within their corporate development team, or they may hire external advisers like investment bankers or the due diligence team at an accounting firm.

Here are some sections of a due diligence report:

  • Corporate records
  • Financial information
  • Indebtedness
  • Employment and labor
  • Real estate
  • Agreements
  • Supplier and customer information
  • Legal

Documents required for due diligence of a company

  • Corporate records
  • Stockholder Information
  • Securities issuances
  • Financing documents
  • Other material contracts
  • Management/ employees
  • Financial information
  • Sales and marketing
  • Real property
  • Intellectual property
  • IT systems and networks
  • Environmental
  • Governmental regulations and filing
  • Litigation and audits
  • Insurance
  • Taxes

FAQs on Due Diligence of Company

A due diligence checklist is a regular way to examine a business that you are concerned about through sales, organization, or different methods. A due diligence checklist is also used for making an audited financial statement or yearly report.
The report comprises 4 things -
  • Products
  • Finances
  • Competition
  • Management
The investment bank has been managing due diligence on a possible investor over the past month. You should practice prudence and conduct due diligence on your vendors. The panel, as always, needs to prove due diligence to its stakeholders.
It includes recognizing through a business's records, verifying sources, making assured everything checks out, and seeking for items the business might have deceived. Don't handle or manage business due diligence alone.
Due Diligence Review (DDR) is a method, how an individual or an association, asks for enough information regarding a business entity to enter an informed decision as to its value for a particular goal. Due diligence is a method of checking avoidable infliction to either party included in a business.

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