A legal due diligence goes beyond rolling the tires of a car. It is a thorough review that involves lawyers and CPAs who review documents and facts. It involves a thorough review of several areas, such as a legal review which covers contracts, litigation liabilities, and intellectual property and corporate records and regulatory compliance, an audit of financials that includes accounting policies, financial statements and tax returns. It also includes an operational review of the company’s management and organizational structure, as well as sales, products, services, marketing, facilities and equipment, supply chain, customer relationships and distribution channels, and competition.
Legal due diligence can be a time-consuming process, depending on level of complexity of the company as well as the amount of money involved in the transaction. This is especially true for large public businesses that have virtual piles information that lawyers must sort through. This is why many legal departments are starting to use technology to streamline and expedite the process, like an online platform for document review that integrates with AI tools.
Set up a framework for your investigation and set a goal prior to when you begin your legal due diligence. It is helpful to organize a checklist of key areas to investigate and have the legal team agree on an action plan with the business owners. Prioritizing areas that require professional assistance is essential. For instance, a legal due diligence review of an IP holding company could involve inquiries from an intellectual property specialist to determine whether the company holds any significant patents or other intellectual property rights, and whether there are any infringement cases currently pending or threatened.