Due Diligence in business transactions is the level of care or judgment put into a particular circumstance. Due diligence is mergers and acquisitions is necessary and also when conducting business transaction, investments or purchase of landed or commercial properties. This can be done by proper review, investigation and carrying out a search on places, documents and interviewing employees and to ensure that all the liabilities related to the subject matter are discovered before completion and the subject is beneficial.
Due Diligence in Business Transactions
Due diligence in business transactions refers to the process of investigating companies in advance of joint partnership, sales, mergers and acquisitions by gaining an understanding of the Company. It involves a lot of obligations such as investigating the debs, liabilities and assets of the company; investigating the tax returns and liabilities of the company; investigating and evaluating any pending lawsuit or potential lawsuit against the company. Legal due diligence may also entail investigating the corporate legal status of a targeted company with the TPPRR. In this regard, a manual search, which will reveal the due incorporation of the company, names of directors, names of shareholders and whether any charges are registered on the company will be conducted on the targeted company at the TPPRR. Generally, the main purpose of due diligence is to carry out a full assessment of all possible financial and legal risk in relation to assets, company’s corporate status, intellectual property, contracts, land transactions and company’s employment in other to ensure that any investment or purchase is beneficial to the investor.
Due Diligence in mergers and acquisitions
It is important for investors to conduct legal due diligence on a Cameroonian company before involving in any mergers and acquisitions, takeovers or other transactions with any company. The benefits of conducting due diligence in merger and acquisition transactions are:
- Due diligence in business transactions help assessing the risk, providing solutions to minimize the risk and potential loss to investors, creditors and shareholders.
- Conducting legal due diligence in mergers and acquisitions can aid in monitoring a target company, its financial position, corporate status, leases, warranties, contracts, compensations, tax liabilities, long term agreements and ascertain its debts.
- Legal due diligence in mergers and acquisitions transactions helps in preventing the investors from incurring liabilities and checking the prospect of solvency.
- Legal due diligence in business transactions can be used to learn about a target company for the purpose of becoming acquainted to the company for ease of effective communication and understanding.
- Conducting due diligence in business transactions enables both the investor’s lawyer and the target company’s lawyer to render accurate legal opinions in merger and acquisition transaction.Legal Due Diligence in business transactions involves but not limited to the following steps:
Steps of Due Diligence
Legal due diligence in business transactions involves but not limited to the following steps:
- Brief a law firm specialized in corporate legal due diligence
- Reviewing documents of a target company
- Carrying out interviews of individuals with knowledge of the company.
- Carrying out necessary searches at appropriate places
- Direct visitation
- Scrutinizing public records of the targeted entity
- Conducting media and internet search on the targeted entity
- Evaluating any ongoing lawsuit against the company
The idea behind the investigation carried out in the corporate field especially in matters relating to contracts, mergers and acquisition is to understand if there will be any future legal problems as a result of such transaction. Due diligence is very necessary for a corporate- commercial related fields, as it helps to identify various obstacles, risk and potential solutions. We have over the years represented a lot of entities in this area and accordingly safe them from making terrible business decision.
Article by Barr. Mafany Victor Ngando
‘‘The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.’’