Increasing alarming circumstances occurring from the corporates has created the demand for more awareness to be spread amongst the stakeholders. Ensuring governance and compliance under the inmumerous regulations is given priority and keeping every organisation updated on the changing laws is a challenge. Sailing through the ocean of corporate legislations in India can be deterrent factor for businesses (be it Indian or foreign) and our corporate legal professionals can provide the right directions for managing these complexities.
Due Diligence
Due Diligence is merely an investigative process where the potential buyer or purchaser ensures that the business or asset acquired does not have any form of flaws. The system of due diligence comes from a legal maxim called ‘Caveat Emptor’. This maxim means buyers beware. Hence the buyer has to take all reasonable steps to ensure that the business does not have any form of flaws.
The term due diligence is commonly used in Mergers and Acquisition (M & A) processes where there are different parties involved. Usually, due diligence services are carried out for a typical Merger and Acquisition process.
1. Financial Due Diligence
Financial Due Diligence is a process in which the buyer would investigate into the finance and accounting affairs of the company. Usually, financial practitioners and chartered accountants are hired to carry out this form of due diligence. By carrying out financial due diligence, the buyer would get a clear understanding of the financial and revenue position of the company. When carrying out the financial due diligence, it is essential to look into the financials of the company to determine the real and true position. For example, during a due diligence transaction, the company needs to look into the balance sheet, profit and loss account and other transactions which are carried out in the past.
2. Legal Due Diligence
This form of due diligence would investigate any form of legal issues faced by the seller or the asset in question. If the selling company or the asset being sold is under any form of litigation, then this would be looked into by the buyer. In a merger and acquisition process, usually, the buyer would pay more attention when it comes to legal due diligence. If there are any forms of compliance issues with the company, then this would be checked. Apart from this, if any subsidiary or firm of the seller has any form of debt, then, the concerned authority would be contacted. Hence, this form of due diligence is carried out to understand if there are any form of legal disputes faced by the seller. Usually, this due diligence would be carried out by transaction lawyers.
