Law Society Review

LAW SOCIETY

DUE DILIGENCE REPORTBASIS AND REVIEW OF LEGAL DUE DILIGENCE BY BOJANA BOGOJEVIC

In the present moment when all economies are facing recovery triggered by the COVID 19 pandemic I strongly believe a proper explanation of Legal Due Diligence and its necessity for establishing, governing and a better understanding of the term is highly important.

Many of you will upgrade your existing knowledge while others will be newly introduced. We will begin with corporate governance and legal advising.

Due diligence is a term used in the Anglo-Saxon dialect to be used for all types of in-depth analysis. Currently, it is mostly used for a comprehensive analysis of the company that is the subject of a particular transaction. It is characteristic that there is no generally accepted and standard legal definition of due diligence. Lawyers would most often define it as a process of examination and research by a potential buyer which would confirm that the buyer is buying exactly what he thinks he is buying.

There are different types of due diligence reports such as:

- Legal Due Diligence.- Financial Due Diligence.- Technical Due Diligence.- Commercial Due Diligence.- Operational Due Diligence.- Tax Due Diligence.

Current corporate practice suggests that Due Diligence is one of the most important steps taken in the sales transaction process of a company, which only evaluates the sales contract from a financial, legal, and technical point of view. Its implementation is important for the company because it represents a security process that avoids the possibility of intentional or unintentional misinformation of investors.

By preparing the Due Diligence report, it is possible to avoid possible future disputes that may arise during and after the sale of the company. This is possible precisely because Due Diligence allows us to perform a valid analysis of a law firm before, during and after a particular business transaction. If Due Diligence is not implemented, the risk of the sale itself increases, which means that approaching the purchase of a company without a prior procedure of collecting relevant information can result in significant financial losses of investors (investors).

Precisely because of all the above, every transaction in the sphere of business requires complete due diligence, because the international and domestic capital markets emphasize the mportance of transparency of business activities. Participants in the development of due diligence are usually the seller or owner of the company, the buyer (investor), a company whose value and potential are the subject of due diligence analysis and business advisors.

Business practice indicates that the process of making due diligence varies from a few weeks to several months depending on the preparation of participants, experience and coordination of business advisors. The production process itself takes place in phases that must be well organized and coordinated.

Legal due diligence analysis focuses on all possible legal issues, in the analysis of all seller’s contracts with stakeholders. Legal due diligence can also include the analysis of the entire industry to which the company that is the subject of the analysis belongs, as well as potential legal and legal problems. The analysis examines all contractual relationships of the company under analysis with stakeholders, such as customers, suppliers, and employees, because these contractual relationships pose a potential risk to all future operations.

Bojan Bogojevic

Legal due diligence is central to the entire due diligence program. It forms the basis for the sale and purchases agreement. The legal part of the due diligence analysis team draws up a contract of sale, merger, or acquisition. According to Peter Howson, when drafting legal due diligence, the following data are reviewed and examined:

- Company Data.- Financial Data.- Data on Employees.

- Data on Tangible and Intangible Assets of the Company.

- Contractual Obligations of the Seller.

- Possible Disputes of the Company.-

- Other.

Legal due diligence is the basis of the sales contract. Precisely because of this, legal due diligence advisors need to determine whether the persons selling the company, or its shares are indeed the legal owners of the subject of sale. A good Due Diligence check list is needed to make sure you don’t overlook anything when acquiring a business.

The current business practice shows us that the awareness of the importance of due diligence is extremely low. For those who are aware of the importance of this analysis, there is a dilemma whether to hire a certain agency or to select specific experts for certain phases of the procedure.

As someone with experience in making legal due diligence, I always opt for the second option, ie to choose experts for certain phases, because technically you do not know how much and what kind of experience have people who are available in agencies or that if you do not have this option before hiring an agency, ask well about the experts who are engaged in it.

At the end I provide you Sample Due Diligence Request Checklist:

- Organization of the Company- Ownership and Control of the Company- Assets and Operations- Intellectual Property- Reports- Compliance with Laws- Environmental Matters- Litigation- Significant Contracts and Commitments- Employees, Benefits and Contracts- Tax Matters- Miscellaneous

Please do not forget that Due diligence checklists are usually arranged in a basic format. However, they can be changed to fit different industries.

**Some parts of this Professional article are published by the Bar Association of Serbia, Long Term Economy portal in Italy, and several media outlets in Serbia.

15 | eYs Magazine, Winter 2022