A legal due diligence review is more than the legal equivalent of kicking the tires of an automobile. It is an extensive investigation using lawyers and CPAs to verify documentation and facts. It involves a review of many areas including a legal review which covers contracts, litigation liabilities and intellectual property and corporate documents and regulatory compliance, a financial review, which includes financial statements, accounting policies and tax returns. It also involves a thorough review of the management, organizational structure and the products, services, marketing, sales, facilities and equipment.
Legal due diligence can be a time-consuming process, depending on complexity of the company and the amount of money involved in the transaction. This is especially true for large public businesses that have virtual piles documents that lawyers need to sort through. Many legal departments are making use of technology to speed up the process. For example an online platform for document review that is integrated with AI tools.
Before you begin the legal due diligence process, establish a framework and goal for the investigation. It is helpful to develop an outline of the key areas to be addressed and have the legal team agree on a plan of action with the business owner. It is also crucial to prioritize which areas require professional input from the company. A legal due diligence review on an IP holding company, for example, may include questions by an expert in intellectual property to determine if the business is the owner of any important patents or other intellectual property rights, and if there are any infringement lawsuits currently pending or imminent.