Legal due diligence is normally carried out when an ownership interest or assets of a company are acquired. The buyer should be certain of the legal status of the company and any possible legal risks and consequences. Due diligence may thus be described as a process of detailed analysis for assessing potential legal issues and risks which the company may face. Where an ownership interest is bought, the main focus of attention is to gain a clear understanding of all the circumstances, including hidden legal pitfalls, agreements with clients and employment relationships.
An important stage of any legal transaction is a thorough legal examination of documents and information about the company or its assets. The primary aim of LDD is to identify and analyse legal risks and give recommendations on how they can be reduced. Depending on the structure of your legal transaction, LDD may precede or follow the conclusion of the contract of purchase and sale, be it a transaction with shares or a transaction with assets of the company.
Legal due diligence may be carried out in respect of both the buyer and the seller. The parties should provide the relevant documents and information. Usually, the materials for LDD are presented on-line, which makes the procedure more straightforward and reliable for both parties.
Following the LDD, the parties have some time to examine, analyse and assess the documents and information and make a decision.