Legal documents for due diligence include those related to a company’s assets, business operations, and any potential liabilities. This review is typically performed prior to any merger, acquisition, or any other business transaction and is essential in determining the value of the company. This review helps identify potential risks by reviewing contracts and agreements as well as any restrictions or encumbrances on assets.

Lawyers will also review financial information, like federal and State tax returns, bank accounts, and credit reports, in addition to the physical assets. They will also look at the company’s contracts, employee benefits, payroll and organizational structure. Legal due diligence can last between 30 and 60 days. In more complex transactions the duration could be significantly longer.

Attorneys will also examine regulatory issues, including any compliance concerns as well as antitrust analysis(opens in a new tab). They will also review the legal landscape of the company and also any litigation that involves the target company or its officers.

The most crucial aspect of an investigation of legal due diligence is determining the possibility of liability for the transaction. It is common for lawyers to suggest obtaining representations and warranties and liability insurance(opens in new tab) to cover the purchase. This is particularly important for buyers who are not familiar with the company of interest and its background. It is a way to protect the seller in case of inaccurate representations or claims made by the buyer. The last but not least, lawyers can review any documentation pertaining to the policies of the company’s employees like golden parachutes, severance packages(opens in an entirely new tab) that may be affected by changes in ownership.

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