Due Diligence
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What is Due Diligence?
- Due diligence means detailed investigation. It is a widely used service in the corporate funding & banking world. It is a process wherein the legal, financial, operational & compliance areas of an entity are reviewed, analysed & documented. Due Diligence is generally done when the management is looking for investment or a bank loan or business sale. Due diligence helps check for any discrepancy or any major potential issue in the organization.
- The primary purpose of due diligence is to check whether the business is legally & financially sound. Due diligence reviews the company’s structure, operations, assets & liabilities and displays how healthy the company is.
Table Of Contents
Overview
The primary purpose of due diligence is to check whether the business is legally & financially sound. Due diligence reviews the company’s structure, operations, assets & liabilities and displays how healthy the company is.
Types of Due Diligence
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Legal Due Diligence
Reviews legal & regulatory aspects of a business. Example: employee & supplier contracts, legal risks arising from the use of intellectual property rights, patents, filings with the ROC. Also, the drafting of transaction documents requires legal experts -
Financial due diligence
Reviews financial & commercial aspects of a business. Example:- Analysis of Historical data & future projections, debtors, creditors, fixed & variable cost analysis, internal controls etc -
Tax Due Diligence
At the time of the merger or acquiring a new business, companies need to manage the tax impacts & mitigate tax risk arising from direct & indirect tax by conducting a tax due diligence. Also, companies are subject to income tax law, labour laws, GST etc. which are verified under this diligence
Related read:How To Save More Taxes Using An Income Tax Calculator?
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Environmental Due Diligence
Companies are liable to follow environmental laws & regulations. In this diligence, check on the company’s impact on the environment & its compliances under ecological laws is carried out. - Apart from the types mentioned above, the company can also conduct diligence for Intellectual Property, Customers, Human Resource & assets of the company.
- All the findings from the review process are summarised into an independent and sophisticated due diligence report. Due diligence reports are useful in the decision making & negotiation process.
Who should conduct Due diligence?
- Organisations looking out for:
- Investments/Funding
- Mergers & Acquisitions
- Strategic Partnerships
- Public Offer
- Enhancing the effectiveness of the organisation
Scope of Due Diligence
- Ensuring Compliance With Companies Act
- Review Of Company Information, Director Information, Charges Registered, MOA & AOA etc
- Compliance With RBI Laws (Foreign Investment Filings)
- Compliance With Labour Laws, Income Tax Laws, GST & Other Applicable Laws
- Review Of Material Contracts With Bankers, Customers, Employees, Suppliers etc.
Related read: An Overview On GST And 5 Ways GST Impacts Your Business
- Registrations & Licenses Obtained Along With Permissions Granted
- Pending Litigations Against The Company
- IP Registration & Use
- Related Party Transactions
- Review of Accounting Systems & Internal Control
- Review of Books of accounts & financial statements
- Review of Legal Aspects ( Contracts entered, suits against the company)
- Review of Operational Aspects (Business model, operations procedures, supply chain, creditors & debtors assessment, employees, customers etc.)
How will we help you?
- We have an experienced & dedicated due diligence team who can assist you with the legal, tax, financial & environmental due diligence.
- Carry out Due Diligence to generate valuable reports and analysis
- Evaluate the proposed deal
- Verification of company records & documents
- Meetings with key persons
- Analysis of data & information
- Highlight potential risks & opportunities
- Check compliances under various laws applicable.
- Give suitable inputs for the transaction.
- Assist in achieving the strategic objectives
- Drafting exclusive agreements & confidentiality letters
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FAQs
No, due diligence is not a mandatory provision under any law. Due Diligence is to be done by a company only when the need arises.
No, due diligence is not an audit. However, the purpose & procedure of due diligence overlaps with that of an audit. But in a real sense, due diligence is a detailed investigation that focuses on critical information.
No, due diligence is not an audit. However, the purpose & procedure of due diligence overlaps with that of an audit. But in a real sense, due diligence is a detailed investigation that focuses on critical information.
Our team shall not only assist you in assessing the main risks but also provide you with the best solutions. Our due diligence reports will highlight the findings in all the areas, along with suitable adjustments to help you achieve your desired objective. We shall help you understand the value drivers & risk associated with your business.
It usually depends on the objective of due diligence. Also, the company’s size & structure shall determine the duration of the due diligence process. Due diligence can be done in a week or can even take up to 6 months.
Speak to our experts who shall solve all your doubts.
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