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Legal Due Diligence

During the conducting of own activities, many entrepreneurs face acquiring or selling a certain asset (tangible or intangible). Such types of assets can be participation interests or shares in the authorized capital, property rights to an intellectual property object or goods, and other issues.

Thus, Due Diligence is reasonable to conduct under the following circumstances:   

  • sale of own business;
  • purchase of a new or existing business, merger, acquisition of companies;
  • participation in the investment project;
  • decreased efficiency of subsidiaries;
  • doubts about the reliability, solvency of the counterparty;
  • establishing a business abroad.

During transactions, interested parties need to be confident in the legality of this transaction and the level of legal risks in the future. The main tool to achieve this goal is to conduct a legal or comprehensive Due Diligence. In this regard, this article provides a brief overview of the main processes of Legal Due Diligence.

What is Legal Due Diligence?

In short, Legal Due Diligence is an investigation of a business by examining legally significant documents, events, and interviewing employees. The following are mandatory for examining the subject of a transaction:

  • Checking the organizational and legal form of the company, constituent documents;
  • Checking the composition of the founders, members of the board, their powers, responsibilities;
  • Checking the structure of the company, subsidiaries, representative offices;
  • Checking the authorized capital and property of the company;
  • Analysis of the company’s intellectual property.

Stages of Legal Due Diligence

Due Diligence can be divided into two main subjects of investigation:

–         Current status

At the beginning of Due Diligence, lawyers seek to understand the current state of the business. This includes examining relevant laws, regulations and contracts. Determining current status can also help value a company and find ways to potentially increase that value.

–         Consequences of a potential deal

At the same time, in the course of legal research, lawyers must establish the negative qualities of the company. This may include looking for potential asset transfer issues or potential future litigation.

Legal Due Diligence itself consists of the following three stages: (1) preparation, (2) research, and (3) obtaining and presenting the results.

In the first stage, during the preparation phase, the goals and priorities of the audit are determined. We emphasize the fact that a clear set goal contributes to effective verification, determining the company’s status and developing recommendations for their solution.

In the second stage of the research, information is collected based on legally significant documents, events and facts. At this stage, the reliability of any information is checked by comparing legal facts from different sources. Thus, the status is determined, which is not only based on the information of one party, but also of other parties, which makes it possible to eliminate bias in favour of any party.

At the third stage of obtaining and presenting the results (Due Diligence end date), the results of the due diligence are announced. These results may contain key facts regarding the company’s activities and/or characteristics of the assets and risks associated with the transaction and recommendations for level levelling risks.

In conclusion, it should be noted that legal Due Diligence is a critically important procedure since it ensures the legality of the transaction and reduces the risk of unpleasant disputes between interested parties. Moreover, its cost is repeatedly justified by the fact that investments in an unreliable object threaten a loss of resources. Furthermore, during Due Diligence, all legal documents and facts that are important for the transaction and the company’s activities are checked. In general, Due Diligence contributes to an increase in the level of trust between stakeholders and efficiency.

Thus, WE Legal guarantees the promptness and high quality of Due Diligence services. We will conduct the Due Diligence service in any area of business activity in Kazakhstan and guarantee the confidentiality of clients’ personal data at all stages of interaction.