Legal due diligence goes beyond kicking the tires of an automobile. It is a thorough review that involves lawyers and CPAs who verify documents as well as facts. It requires the review of a wide range of subject matter, including a legal review of material contracts litigious liabilities, intellectual property, regulatory compliance and corporate records review of financial statements and accounting policies, and tax returns. It also involves a thorough review of the organizational structure, management and the product, service marketing, sales, facilities and equipment.
Legal due diligence can be a long-winded procedure, depending on the complexity of the company and the amount of money involved in the transaction. This is particularly true for large public companies that have virtual piles of information that lawyers must sort through. Many legal departments are making use of technology to speed up the process. For example, a document review platform is integrated with AI tools.
Before beginning the legal due diligence process, establish the structure and goals for the investigation. It is helpful to organize an agenda of areas to be covered and have the legal team work out the strategy of attack with the business owners. It is also important to prioritize which areas require specialist input from the firm. For example, a legal due diligence review of an IP holding company might include questions from an intellectual property specialist to determine whether the company is in possession of any significant patents or other intellectual property rights and whether there are any infringement proceedings in the process or being considered.