Legal documents that are required for due diligence include documents pertaining to a company’s assets business operations, and any potential liabilities. This review is typically performed prior to a merger and is crucial to determine value for the company. It also helps to https://medicaldataroom.com/top-8-vdr-features-every-ma-team-needs/ understand the risks that could arise from the course of a deal by reviewing contracts, agreements, and any restrictions or encumbrances that apply to assets.

In addition to looking into the physical assets of a target business, lawyers frequently examine financial data such as state and federal tax returns and bank statements as well as credit reports. They also will look into the company’s payroll, employee benefits, contracts and the organizational structure. Legal due diligence can take between 30 and 60 days. In more complex deals the amount of time could be significantly longer.

Attorneys also will review regulatory issues, including any compliance concerns and antitrust analysis(opens in new tab). They can also examine the legal structure of the company, which includes any litigation that involves the company’s officers or employees.

The most crucial aspect of an investigation of legal due diligence is determining the risk for the transaction. It is common for lawyers to advise obtaining representations and warranties and liability insurance(opens in a new tab) to cover the purchase. This is especially important in cases where the buyer is not acquainted with the target company and its background. It is a way to protect the seller from misleading claims or statements made by the buyer. Lastly, lawyers may also examine any documentation of the company’s employee policies like severance plans and golden parachutes(opens in new tab), which could be affected by a change in ownership.