Legal documents for due diligence include those related to a company’s assets, business operations and potential liabilities. This type of review is usually conducted before a merger or acquisition and is vital in determining the value of the company. This review helps to identify possible risks by examining contracts agreements, agreements, and any restrictions or encumbrances placed on assets.
Lawyers will also review financial data, including federal and State tax returns, bank accounts and credit reports as well as physical assets. They also will look into the company’s payroll, benefits, contracts, and the structure of the organization. Legal due diligence is a process that can take between 30 and 60 days. In more complex transactions the amount of time could be significantly longer.
Attorneys also will look into regulatory issues, including any compliance concerns or antitrust analyses(opens in a new tab). They will also review the company’s current legal landscape and also any litigation that involves the company in question or its officers.
Analyzing the potential risk of a transaction is the most important element of a legal diligence investigation. It is common for attorneys to recommend obtaining representations and warranties insurance. insurance(opens in a new tab) to cover the purchase. This is particularly important for buyers who are not familiar with the company of interest and its history. It protects the seller in the event of inaccurate representations or claims made by the buyer. Additionally, lawyers can look over any documentation pertaining to the policies of the company’s employees like severance plans and golden parachutes(opens in new tab) and could be affected by a change in ownership.
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