Legal Documents for Due Diligence

Due diligence documents include those that pertain to a company’s assets operating, liabilities and assets. This type of review is typically conducted prior to a merger, acquisition or other business deal and is vital in determining the worth of the company. This review helps to identify potential risks by looking over contracts agreements, agreements, and any restrictions or encumbrances that are placed on assets.

Lawyers will also review financial information, such as federal and State tax returns, bank accounts, and credit reports in addition to physical assets. They also will look into the company’s payroll, employment benefits, contracts and organizational structure. Legal due diligence is a procedure that can last anywhere from 30 to 60 days. The length of time may increase with more complex transactions.

Attorneys also will review regulatory issues, including compliance concerns as well as antitrust analysis(opens in a new tab). They may also examine the legal landscape of the company, which includes any litigation involving the company in question or its officers.

Assessing the potential liability of a transaction is the most important aspect of a legal diligence investigation. It is typical for lawyers to advise obtaining representations and warranties in the form of liability insurance(opens in new tab) to protect the purchase. This is particularly important when a buyer is not acquainted with the target company and its background. It protects the seller from misleading assertions or claims made by the buyer. Additionally, lawyers can review any documentation regarding the policies of the company’s employees for example, severance agreements and golden parachutes(opens in new tab), which could be affected by a change of ownership.

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