Fund Investments Due Diligence
Legal due diligence or pre investment due diligence is one of the important as well as lengthy process. It’s the most important step to take by a buyer who wants to confirm the accuracy of what the seller claims in legal documented format.
What is Legal due diligence?
The term “due diligence” in the Merriam Webster’s Dictionary of law is defined as “The process of investigation carried on by a disinterested third party (such as law firm or an accounting firm) on behalf of a party contemplating a business transaction (as a corporate acquisition or merger, a loan of finances, or especially purchase of securities) for the purpose of providing information with which to evaluate the advantages and risk involved”
In simple words, Legal / PreInvestment due diligence is an examination, concerning a business by reviewing records and interviewing employees. It will be finished when a business or financial specialist is keen on purchasing a business or putting resources into that business.
The necessary of due diligence arises in case when the big companies or multinational corporations wants to trade any company or its assets. This scenario includes lot of people, documents and money. This report will provide you all the necessary details in addition, it also helps the buyer to negotiate and make decisions.
Qwinlaw is one of the best due diligence company that provides legal due diligence services in India. We are a one stop solution to all the necessary procedures required the from initial stage to the end report.
Legal due diligence in India
There is a deserved place for pre investment due diligence in Indian statutes. The conduct of due diligence has become a mandatory provisions under the SEBI Regulations 1996 and offshore offerings of securities by Indian companies through American or global depository receipts (ADR’s and GDR’s)
The Indian context defines that ordinarily there is neither a positive statutory duty on the part of the buyer to exercise due diligence nor a criminal liability for a failure to exercise due diligence.
How is legal due diligence process undertaken?
The pre investment due diligence process is undertaken in four phases before the completion of the intended transaction
- Memorandum of understanding (MOU): These are set of initial negotiations usually concluded with the letter of intent or the memorandum of understanding.
- LDD: The legal due diligence investigation is done in this stage.
- Definite agreements: The negotiation and signing of the definitive or final transaction agreement is done in this method.
- Closing: The analysis and strategy is done between the transacting parties in closing stage.
In other words, a pre investment due diligence process is looking for data about the business is to ensure that the investment or buy is useful. The examination tries to uncover immeasurably important existing as well as potential liabilities. An educated choice can be made once the company’s due diligence report is gathered and broke down.
What does a Legal due diligence report contain?
Initially a legal due diligence checklist has to be prepared. The checklist should mainly focus on parameters such as:
- Financial Information
- Management Information
- Product and customer Information
- Legal and related information.
After the legal Investigation in above sectors, a final report has to be made. The legal due diligence report contains major factors such as:
- Company’s Information
- Statutory compliance with the applicable regulations
- Licenses, permits, approvals and specific statutory compliance
- Share holders
- Share capital
- Taxation issues and much more
Hence, due diligence is much more detailed one. It also elaborates on all the aspects from a corporation to its labor problem, share markets to environmental issues and taxation.
Benefits of having a pre investment due diligence
- The information discovered during the due diligence investigation lead to support negotiation for both merger and acquisition.
- It forms a big picture of the target company and its future earnings.
- It give a complete analysis of the targeted company
- Smooth transition of the merger.
Risk Involved without pre investment due diligence
Investments in the equity of a private company involves a high degree of risk. Investors may lose all or decent amount of their investment if they are not careful and have not completed pre-investment due diligence.
How Qwinlaw can help?
We at Qwinlaw assist you with your pre investment legal due diligence. We are one of top Due Diligence Company in India. Also, we provide legal assistance for your target company for domestic or Foreign Direct Investment to India. In addition, drafting of agreement is an in-depth and entangled process so this should be created by an experienced counselor. Therefore, Qwinlaw is the right choice for end to end solution on legal due diligence.
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