Legal Documents for Due Diligence
Due diligence documents are those related to a company’s assets as well as its operations and liabilities. This type of review is typically conducted prior to a merger, acquisition or other business deal and is essential in determining the value of the business. It also aids in understanding the potential risks associated with a deal by reviewing agreements, contracts and any encumbrances or restrictions on assets.
Lawyers will also review financial data, like federal and state tax returns, bank accounts, and credit reports, in addition to the physical assets. They will also examine the company’s payroll and employment benefits, contracts and organizational structure. Legal due diligence can take between 30 to 60 days. In more complex transactions, the length of time can be extended significantly.
Attorneys will also examine regulatory issues, including any compliance concerns as well as antitrust analysis(opens in new tab). They may also review the legal framework of the company, including any litigation that affects the target company or officers.
Assessing the potential liability of an investment is the most crucial aspect of an investigation into legal diligence. It is common for attorneys to recommend obtaining representations and warranties and liability insurance(opens in a new tab) to cover the purchase. This is particularly important when the buyer is not familiar with the background of the company in question. It can protect the seller in case of false representations or claims made by the buyer. Also, lawyers may review 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.
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