A legal due diligence is more than driving around in a car. It is a thorough investigation that involves lawyers and CPAs who check documents and facts. It requires the analysis of a wide range of areas of focus, including an analysis of legality of contracts litigious liabilities, intellectual property, regulatory compliance, corporate records, financial reviews of financial statements and accounting policies, and tax returns. It also includes an operational review of the business’s management structures, organizational structure, sales, products, marketing facilities and equipment, supply chain, customer relations sales and distribution channels, as well as competition.
Legal due diligence can be a lengthy process, depending on extent of the company’s operations and the amount of money involved in the transaction. This is particularly applicable to large public firms that have virtual stacks of documents that lawyers have to sort through. Many legal departments are now using technology to simplify the process. For example a document review platform that is integrated with AI tools.
Before beginning the legal due diligence process, you must establish a framework and goal for the investigation. It is helpful to prepare an outline of the areas to investigate and have the legal team agree upon the best strategy for the investigation with the business owners. It is also important to prioritize which areas require specialist input from the firm. For instance legal due diligence review of an IP holding company may include queries by an intellectual property specialist to determine if the company holds any significant patents or other intellectual property rights and whether there are any infringement cases in the process or being considered.