Legal documents for due diligence are documents pertaining to a company’s assets, business operations, and potential liabilities. This review is typically conducted prior to a merger or acquisition and is crucial in determining the value of the business. It also assists in understanding the risks that could arise from an acquisition by reviewing contracts, agreements and any restrictions or encumbrances that apply to assets.
Lawyers will also scrutinize financial data, like federal and state tax returns, bank accounts, and credit reports as well as physical assets. They will also review the company’s payroll, employee benefits, contracts and the structure of the organization. Legal due diligence is a process that can last anywhere from 30 to 60 days. The timeframe could be extended in more complicated transactions.
Attorneys will also look at regulatory issues, like any antitrust or compliance issues, or analyses(opens in a new tab). They might also analyze the current legal landscape of the company and also any litigation that involves the company in question or its officers.
The most important aspect of an investigation of legal due diligence is assessing the potential liability for an transaction. It is typical for attorneys to recommend obtaining representations and warranties in the form of liability insurance(opens in new tab) to protect the purchase. This is especially important in cases where the buyer is not acquainted with the target company and its background. It could protect the seller from incorrect claims or representations made by the buyer. In addition, lawyers can review any documents pertaining to the company’s employee policies such as golden parachutes or severance packages(opens in an entirely new tab) that could be affected by changes in ownership.