Legal Due diligence is a legal examination of documents of a business entity, legal analysis of legality of a company's business activities and competence of its management bodies.
Legal Due diligence usually includes a review of:
I). When conducting legal due diligence, first of all, an examination of the legal status of a business entity at the time of such an examination is carried out, as well as all the procedures for a company’s setting up, registration and the risks associated with corporate rights to a company, and namely:
1. Organizational and legal structure and company management:
1.1. Examination of the legal status, history of a company’s creation, the legality of change in its membership (shareholders’ structure);
1.2. Analysis of the current constituent and other corporate documents of a company for compliance with the current legislation and decisions of the beneficiaries of the business;
1.3. Analysis of the proper state registration of a company and its (its structural divisions) registration with state bodies;
1.4. Analysis of compliance by a company with the legislation on licensing and certification;
1.5. Examination of the lawfulness and legality of a company’s creation, functioning of all its management bodies.
2. Authorized capital:
2.1. Examination of information and documentation on compliance of the amount of the authorized capital with the legal requirements and decisions of the beneficiaries, on changing the authorized capital of a company, as well as check of proper registration of changes introduced to the authorized capital;
2.2. Analysis of documents confirming the full and timely payment of the authorized capital of a company;
2.3. Verification of compliance with the requirements of corporate and antimonopoly legislation when all members (shareholders) acquire rights to ownership interest (shares) in the authorized capital;
2.4. Check for possible encumbrances on ownership interest (shares) in the authorized capital and litigation in relation to the rights of all members (shareholders) of a company to ownership interest (shares) in the authorized capital.
3. Labor (contract) legal relations with employees:
3.1. Analysis of contracts with senior executives and members of a company's management bodies for compliance with the legislation and existence of unusual compensation conditions and incentive measures;
3.2. Examination of a company's collective agreements for unusual compensation and incentive measures, pension and other similar deductions;
3.3. Examination of the current provisions on bonuses to employees of a company for unusual compensations and incentive measures, pension and other similar deductions;
3.4. Check of correctness of execution of personnel documentation; hiring, transferring and dismissing employees and documenting procedures;
3.5. Check of existence of civil contracts concluded with individuals and identifying the risks of recognizing them as labor contracts;
3.6. The likelihood of litigation with employees is estimated; analysis of dismissals of employees for a certain period is carried out for mass release of jobs, observance of the rights of employees when terminating an employment contract due to a reduction in the number and staff of employees, etc.
II). When conducting legal due diligence further, at the client’ request, a company’s title rights of ownership of the necessary for the business and capital-intensive assets are verified, and namely:
4. Real estate:
4.1. Analysis of information and documentation on real estate owned by a company on the basis of a right of ownership, lease, use, etc .; initial permits and technical documentation: building permits, commissioning certificates, sales contracts, etc.;
4.2. Examination and documentary evidence of existence or absence of encumbrances on a company's real estate;
4.3. Examination and verification of the history of transferring title rights to real estate pieces and the associated risks.
5. Intellectual property:
5.1. Analysis of existence of intellectual property items (patents, trademarks, domain names, software, etc.) owned by a company at the date of the audit, verification of their proper protection and registration;
5.2. Analysis of documents confirming payment by a company of payments for licensing, prolongation of registration of intellectual property items;
5.3. Analysis of licensing, distribution and franchising agreements concluded by a company with third parties in relation to the owned by them intellectual property items in order to identify atypical or burdensome conditions for a company.
6. Key pieces of movable property, equipment and vehicles:
6.1. Verifying the existence of capital-intensive and business-critical pieces of equipment and vehicles owned by a company, analysis of their proper registration;
6.2. Analysis of contracts concluded by a company with third parties in relation to the owned by them equipment and vehicles in order to identify atypical or burdensome conditions for a company;
6.3. Identification and analysis of encumbrances and other risks in relation to equipment and vehicles owned by a company.
III). And finally, when conducting legal due diligence as assigned by the client, transactions concluded by a company for a certain period can be verified, and namely:
7. Material contracts:
7.1. Analysis of all the main existing contracts concluded by a company in the course of its main business activity;
7.2. Verification of proper approval by the relevant management bodies of a company of the main existing contracts as major transactions, transactions with affiliated persons;
7.3. Analysis of existence of bonds and other debt securities issued by a company, which have outstanding significant financial liabilities at the date of the audit.
8. Compliance with legal requirements:
8.1. Check of whether a company has special permits and certificates required for its main business activities;
8.2. Check of a company's compliance with the requirements of environmental and other ecological legislation;
8.3. Check of a company's compliance with the personal data protection laws.
8.4. Analysis of the current legal proceedings against a company and potential risks of new claims against a company related to its (non)activities.
The list of control procedures is not exhaustive and is agreed upon individually with the client.
The cost of Legal Due Diligence (Due Diligence) services is calculated individually, based on the number of ordered procedures and the size of the audited company, and is presented by COLLEGIA Law Firm after receiving an assignment from the client.
Yuliya Ostreiko, Managing Partner, Certified Lawyer
Tel.: +375 (29) 608-79-47