For a purchase of any kind, say, buying something online, one tends to do thorough research on the product. This entails checking for anything about the product that would make one not buy it at all. This in itself is basic form of due diligence performed before the purchase of that particular item.
By definition, due diligence is the set process of making evaluations on a business or company from set aspects or perspectives before making the decision to buy. In other words, it is a very in-depth analysis of any liabilities a company has, its obligations to whichever parties, its organizational and business structure, the financials, and the legal situation that a company is in.
Due diligence is seen as one of the most important steps and processes in the purchase of a company, and as such, requires to be planned for, and completed way before the purchase of the company moves into more advanced stages. As a buyer, it is completely one’s responsibility to perform due diligence.
As is with any important business dealing, the importance of having a good lawyer in Phuket or a good Phuket law firm cannot be overstated. Once the letter of intent to purchase is signed by both parties, it is then that the seller provides all the company’s data and information not limited to client information, staff files and records, and financial and sales numbers.
Why Due Diligence?
While generally an investigation to the position of a company, due diligence differs from one company purchase to the next. Factors like industry or nature of the business affect the parameters than the investigation will seek. Due diligence aims at ensuring that the buyer of the company is protected and that nothing is hidden at the beginning, only to be uncovered when the deal is done, and the purchase is complete. Liability will have already shifted from seller to buyer.
For this and other reasons, a Phuket lawyer dealing with business or company law, specifically in the area covered by the company being bought, would be an invaluable asset, as would a tax attorney to ensure that no liabilities are on that front as well. Any findings put the buyer in a stronger position to do any re-negotiation of the initial terms if necessary, say, payable considerations to be made and have a Phuket lawyer add relevant warranties and indemnities in the purchase agreement.
What’s Involved in the Due Diligence Process?
Involvement in due diligence encompasses the buyer, a financial expert, and a lawyer or trusted Phuket law firm. Of course, intent of purchase agreements must already be presented and signed. Company records and documents that may shed light on any liability are of the highest interest. These may include agreements for sales and purchase. Any previous, ongoing or potential lawsuit-related documents are also key. This, of course, will be done by a lawyer. Company strategies, plans for future growth and expansion of operations are also important as are interviews with the company’s executive and subordinate staff to really get a good picture of the running of the company, as well as the vision. Verification of the provided inventory listing is also important and it goes towards the valuation of the company.
Steps in the Due Diligence Process
- Hiring the Right Personnel
If not already available, hiring the right people to perform the due diligence is key. The two most important people are:
An accountant who can perform audits and financial investigations to go through all financial records and uncover any potential irregularities;
A lawyer who has a wealth of knowledge in company mergers and acquisitions.
- Getting all the Right Documents
Due diligence is heavily dependent on the documents requested for or those provided. The company’s documents should include minutes at every management level, list of counties or regions that the company conducts business in articles of incorporation for the company and so on. There should also be licenses, permits, consent letters, mortgages, deeds and leases, all to be seen by appropriate Phuket lawyers.
The accountant should receive all financial documents like annual reports, tax filings, balance sheets, assets and liabilities and general ledgers for thorough investigations.
- Taking Stock: Inventory
Physical assets of any kind belonging to the company should be taken into account and independently verified. This includes office equipment, manufacturing equipment if any, supplies and raw materials and even real estate and other properties. A company’s assets determine its valuation and inform the buyer of what kind of offer to make to the seller.
- Review Of Contracts
As mentioned earlier, buying a company shifts all contractual liability from the seller to the buyer. The lawyer should, therefore, go over all agreements and contracts. The seller should provide, all contracts and agreement, the lawyers and other professionals who worked with the company in recent times.
- Review of Employee Records
A company’s employee handbook should also be reviewed. Resumes for the top-level management staff should be provided, as should those of the members of the board. Any issues such as employee complaints or terminations and any related or potential suits should be highlighted. Any non-disclosure and confidentiality agreements should also be looked at by the lawyer. The accountant should be provided with the list of salaries and other benefits enjoyed by the staff over a specific period.
- Review of Policy Documents, Legal Documents
The company’s policies should be reviewed and completely understood before purchasing a company. There should also be an assessment of any potential litigation towards the company, and if any, perform an assessment of the potential risk in terms of damages, whether financial or reputational which then the buyer will use to re-assess interest in acquiring the company.
- Product and Customer Data
Finally, an assessment should be carried out on everything that is consumer-facing from market perception to product performance. Any products under development should also be assessed. A review of regulatory compliance should be done, any complaints or feedback on surveys done. A lawyer proficient in copyright and intellectual property should perform checks as to whether the company’s products are registered and protected.
Due diligence is vital for any company acquisition. It is a necessary process with many factors to be reviewed and consider. In some cases, one lawyer may not be enough, depending on the size of the company in question. Having an excellent team of lawyers from an established Phuket law firm will go a long way in ensuring that the process carries on diligently and that once the purchase is done, there will be no surprises.