Legal due diligence is more than rolling the tires of the car. It is a thorough review that involves lawyers and CPAs who check documents and data. It involves a review of several areas, including a legal review, which includes contracts, litigation liabilities, and intellectual property, as well as corporate documents and regulatory compliance, an audit of financials, which includes accounting policies, financial statements and tax returns. It also includes an operational review of the business’s management organization structure, organizational structure, sales, products, services marketing facilities and equipment, supply chain, customer relationships, sales and distribution channels, and competition.
Legal due diligence can be a long-winded procedure, depending on the extent of the company’s operations and the size of the transaction. This is especially relevant for large public companies that have virtual piles of documents that lawyers need to sort through. This is why a lot of legal departments are starting to utilize technology to simplify and speed up the process, for instance a document review platform that integrates with AI tools.
Before beginning the legal due diligence process, create the framework and purpose for the investigation. It is beneficial to make an agenda view it now of key areas that need to be addressed and to have the legal team agree on a strategy with the business owner. Prioritizing which areas need expert input is crucial. A legal due diligence check on an IP holding company, for example might include questions from an expert in intellectual property to determine if the business has any patents that are important or other intellectual-property rights, and whether there are any infringement cases currently being considered or expected to be filed.