Legal Due Diligence of the Companies

The term “due diligence” is very common and well known in the business world. Therefore, first we have to understand the meaning and concept of Due Diligence of the Companies.

Meaning of Due Diligence:

Due diligence is the systematic examination and investigation of the business of a Company in order to assess the associated legal and financial risks before making a decision for financial transaction whether it be a merger and amalgamation, acquisition of substantial shares, private equity investment, venture capital investment, IPO, business transfer, slump sale etc.

Proper due diligence puts an investor into a position to make an informed decision and avoid surprises at the end of a deal.

Process of Due Diligence:

The Investor shall ask the target company to provide information and data of the target company including MOA and MOA, share capital structures, share certificates, copies of all the corporate filings including ROC filings, filings with SEBI and stock exchanges, MSME filings, copies of all the necessary regulatory registrations/ approvals and licenses and their compliances, FEMA and FDI compliances (if applicable), copies of contracts and material agreements, insurance policies, financial statement, details of loan and investment in the company,  details of loan and investment by the company, IPR details, copies of labour law registers and compliances, human resource management and policies, real estate property details, Income tax and GST related details and returns, details of cases in the name of company which are recentaly decided and pending cases relating to tax, labour, IPR, and details and status of other litigations in the name of company.

Independent online search:

After obtaining the information and data from the target company, an independent search at MCA (Ministry of Corporate Affairs), SEBI and BSE/NSE portal is also required to be done to verify the details of corporate compliances and timely filings apart from the online title search of the real estate properties.

Preparation of Due Diligence Report:

After thoroughly examining and verifying the information and data of the target company, a comprehensive due diligence report should be prepared specifying the potential risks for investment wherever applicable. Due Diligence Report should include each segment of the business of target company providing comments wherever applicable specifying the matter and issues which shall be included in the transactions documnents specially in (i) Condition Precedent, (2) Condition subsequent, (3) Representation and Warranties from the existing management of the target company, (4) Indemnities from the existing management of the target company etc.

Executive Summary:

An executive summary provides an overview of the main points and concerns of the due diligence report to share with individuals or management of investing company, who may not have time to review the entire report. Therefore, an executive summary is also required to be prepared along with the Due Diligence Report.

Engagement of reliable professionals:

Conducting due diligence of a company is a very responsible, tricky, tough and valuable job because based on the due diligence report an investor decides whether to make huge investment into the business of target company or not. Therefore, an efficient team of professionals should be engaged for undertaking the due diligence of the target company. If anyone needs any kind of help or legal advice on this issue or in general, please feel free to contact me at any time. My Number is 9818865693 and email is

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