Legal due diligence is more than just kicking the tires of an automobile. It is a detailed investigation involving lawyers and CPAs to verify documentation and facts. It involves a review of several areas, including a legal review, which covers contracts, litigation liabilities and intellectual property and corporate records and regulatory compliance. It also includes an audit of financials that includes accounting policies, financial statements and tax returns. It also involves a thorough review of the organizational structure, management and the product, service and sales, as well as marketing facilities and equipment.
Legal due diligence can be a time-consuming procedure, depending on the level of complexity of the company as well as the size of the transaction. This is especially true for large public companies that have virtual piles of information that lawyers must sort through. A lot of legal departments are using technology to streamline the process. For instance an online platform for document review is integrated with AI tools.
Before beginning the legal due diligence process, create the framework and purpose for the investigation. It is helpful to develop a checklist with key areas to be addressed and get the legal team to agree on a strategy with the business owner. Prioritizing areas that require experts’ assistance is crucial. For example, a legal due diligence review of an IP holding company might include questions from an intellectual properties specialist to determine whether the company holds any significant patents or other intellectual property rights and whether there are any infringement actions currently pending or threatened.