Legal documents to be used for due diligence are vital pieces of information a prospective buyer should review to determine whether the purchase of a company is valid. These documents include financial, legal and intellectual property information, sales and corporate information, tax data as well as property and equipment and human resources. A due diligence report provides the findings of an investigation.
It is a common omission to try and complete an agreement without having done the proper legal due diligence. This is dangerous for all parties involved as it leaves the purchaser vulnerable to legal action if she later finds that there are legal skeletons in the closet. It is also a violation of the law for officers and directors of a corporation to conduct this as they are in violation of their fiduciary obligation to stockholders to act in good faith.
It is crucial to establish a plan of activities for the due diligence process. This should begin with the steps which will take the longest time, leaving the typically faster items for the last. Additionally, it’s recommended to conduct interviews with senior management and employees to gather first-hand information or provide clarification.
Finally, the buyer should accept a list of the legal documents that they want prior to negotiating with the seller. It is helpful to use a virtual data space to accomplish this since it saves time and effort for both parties. If the seller doesn’t want to disclose everything, they might ask the buyer to sign a non-disclosure document prior to due diligence.
