What is Legal Due Diligence
Legal Due Diligence is an exercise in which one party discloses all material statements, information and documents and the other party investigate the legal affairs and conduct of the target company based on the statements, information and documents furnished.
Circumstances requiring legal due diligence
Legal due diligence is commonly conducted before concluding the definitive agreement for a share acquisition or subscription transaction.
Why is there a need for legal due diligence
Conducting legal due diligence allows a party to identify the target company’s legal risks and exposures, findings from the legal due diligence process will identify the target company’s contractual obligations, existing and potential legal liabilities, ongoing claims and litigation, risks of litigation, regulatory compliances and intellectual property rights.
Processes involved
- The target company will be required to complete a legal due diligence checklist.
- The legal due diligence checklist comprises of a list of questionnaires and documents required to be furnished by the target company, which may include the target company’s statutory documents, resolutions and minutes of meetings, contracts (above a certain threshold), licenses and permits.
- The scope of legal due diligence varies depending on the industry and nature of transaction.
- The completed checklist and documents provided will be thoroughly reviewed.
- Upon completion, the findings of the due diligence exercise are compiled into a legal due diligence report, and where applicable, recommended risks mitigation actions may be suggested.
Do you need a lawyer to conduct a legal due diligence exercise
While not mandatory, it is highly advisable to engage a lawyer with the requisite expertise, who can interpret the information and documents, identify potential issues or “red flags”, and offer advice throughout the process.