Legal Due Diligence

Due diligence is the investigation for removal legal and financial risks (in purchasing or selling of a business or a share, in investing) or for identifying lowlights in a legal component of a company.

Due diligence can be as comprehensive that affects all aspects of the company’s activity and its interactions with the environment; as the one that relates only to a certain part of the company’s activity.

Often (on the Internet) you can come across proposals for due diligence of contracts, but in our opinion this use of the word combination “due diligence” does not fully reflect the essence of this procedure, which follows from the dictionaries, namely, “due diligence” is the detailed examination of a company and its financial records, done before becoming involved in a business arrangement with it ".

Due diligence can be initiated either by the owners or the managing body of a company or by a third party in the agreement of a business entity. Usually the interested party is a potential investor.

The purpose of initiating a due diligence by a legal entity is to identify lowlights in drafting of legal documents related to any aspects of activity, including relations with employees, customers, government bodies, etc.

This procedure helps the company to avoid losses such as fines, disclosure of trade secrets and similar situations.

The purpose of initiating a due diligence by investors is to obtain an opinion from lawyers on the level of reliability of a potential investment entity (company). It is no secret that most entrant companies, which include startups, at first do not pay attention if their documents are drawn up properly, they hope that in future they will be fixed somehow. At the same time, professional players of the investment market give priority to the most reliable legal entity to reduce risks of losing investment funds.

Due diligence includes:

·        due diligence of constituent (corporate) documents (CORPORATE PRACTICE)

·        due diligence of the legality of the company’s activity (licensing)

·        due diligence of contracts and agreements for entrepreneurial activity (COMMERCIAL PRACTICE)

·        due diligence of contracts and agreements for management and employees

·        due diligence of intellectual property (INTELLECTUAL PROPERTY)

·        due diligence of property and non-property rights of owners (business partnership)

·        due diligence of foreign economic activity

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