How to Prepare Your Legal Documents for Due Diligence?

Due diligence analysis for business in relation to medium and small companies is much more important since stock price fluctuations are more pronounced, and the risk level is greater. Check how to prepare your legal documents for due diligence in the article below.

The Development of a Transparent and Sustainable Business with Due Diligence

Due diligence is an analysis of the tax situation of a business. The tax burden of the company is assessed; the possibilities of tax optimization are assessed. A necessary element is the analysis of transactions concluded by the company in terms of tax risks, and violations of tax laws. At the same time, an assessment of the risk of claims from the tax authorities is carried out. Sometimes this type of due diligence is distributed between the financial and legal blocks.

Currently, the definition of due diligence is considered in a broader sense: due diligence is understood as a comprehensive check of the state of an object or asset in order to identify certain risks. At the same time, the classification of factors affecting due diligence should be carried out, taking into account the following requirements:

  • sufficiency of the number of levels of classification of factors, allowing them to form their full set;
  • sufficient flexibility of the classification, which allows expanding the set of classified factors, groupings, and characteristics, as well as making the necessary changes without violating the structure of the classification.

Due diligence is aimed at assessing the efficiency of the company’s economic activity and its solvency. Based on the information received, the value of the organization, the prospects for its development, and profitability are assessed, and the risk of bankruptcy is indicated.

The development of a transparent and sustainable business environment implies a constant fight against risks and fraudsters. According to the principle of due diligence, it is determined in advance whether you are ready to work with a company or person, and whether this will become a potential danger to your finances. Therefore, verification of counterparties and constant monitoring of information will allow you to detect risk factors before concluding a transaction and choosing a profitable and safe option.

The Best Way to Prepare Your Legal Documents for Due Diligence

A security threat in due diligence is understood as a situation in which basic services can be violated, for example the integrity, confidentiality, and availability of information. Morphological analysis shows that the following main components of the threat to information security can be distinguished: the source of influence on the information system, the method of influence, and information objects of influence.

Check the next legal documents for due diligence:

  • Shareholder certificate documents.
  • Building permits documents.
  • Tax registration documents.

In addition to checking the counterparty itself, you need to find out the powers of the person who acts to you on behalf of this organization. For this purpose, copies of documents on senior management and the appointment of the chief accountant should be requested from the counterparty. If the contract can be signed simply by an authorized representative, then you need to check his power of attorney for this. After – check the information with his passport data if he provides them. However, please note: that you do not have the right to require a person to provide personal data.

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