What is Legal Due Diligence? Why Legal Due Diligence? Role of Law Firm in Legal Due Diligence. Corporate Compliance Management

1. LEGAL DUE DILIGENCE
An Investor Perspective

2. What Is Legal Due Diligence
Due diligence is the level of judgment, care, prudence, determination, and activity
that a person would reasonably be expected to do under particular circumstances.
Due diligence assesses the risks and opportunities of a proposed transaction. it
helps to reduce the risk of post-transaction unpleasant surprises. It also increases
the possibility of achieving investment objectives.

3. “Strengthening the Foundation”
Growth
Due
Diligence
Stability

4. Acquirer/ Joint Venture Partner/Investor
Investor is the one who proposes to take some stake in an
existing Company.
Acquirer is the one who proposes to purchase majority of
shares of an existing Company.
Joint Venture Partner is the one who joins hands to do
business with other partner.

5. Why Legal Due Diligence
An acquirer/JV Partner would want to
undertake legal DD to assess
Risks Opportunities

6. Why Legal Due Diligence
History of Company
Informed decision about Reduces risk of Investment
Investment
Outstanding litigation against Estimation of current and future
the company liabilities
Estimation of compliance level of
Company

7. Role of Law Firm in Legal Due Diligence
• Assess the risk factors and investment
• Interaction with management and auditor of Company
• To understand the operation of Company
• To understand the decision making hierarchy in Company
• Visit at Plant site
• To understand the compliance practice in company

8. Role of Law Firm in Legal Due Diligence
Company History & Background
Capital Structure & Evolution
Management & Key Managerial Personnel
Identification of laws applicable to Company
Corporate Compliance Management
Material Contracts & Agreements

9. Role of Law Firm in Legal Due Diligence
Outstanding Litigations
Assets and Immovable Property
Registration and Licens
Insurance & Risk Management
Human Resource
IPR
Others as per company

10. Company’s History and Background
Change in Corporate
Age of the name Basics of Office and
Others
company and address company Plant
of company location

11. Capital Structure and Evolution
Authorized Share Capital
Issued/Subscribed/Paid-up Capital
History of Capital Evolution
Convertible or redeemable instruments

12. Management and Key Managerial
Personnel
Details about Board of Directors
Profile of Board of Directors
Key employees like CEO/CFO of Company
Organization Structure of Company

13. Identification of laws applicable to
company
Understand the business of Company
Understand the location of business
Prepare a list of laws applicable to company

14. Corporate Compliance Management
Corporate
Compliance
Management
Industry
Central laws State laws
specific laws

15. Central Laws
Company Laws and Rules
Securities Laws Environment Laws
and Regulations
Air (Prevention and Control
Companies Act, 1956 SEBI Act, 1992
of Pollution) Act,1981
Securities Contracts The Environment
Other Rules and Regulations
(Regulation) Act, 1956 (Protection) Act ,1986
The Water (Prevention and
The Depositories Act,1996: Control of Pollution)
Act,1974
The
SEBI(SAST) Regulations,
Forest(Conservation)Act,19
2011
80

16. Central Laws
Taxation Laws Industrial Laws Others
Central Excises Act,1944 Factories Act Arbitration and Conciliation Act
Central Excise Tariff Act, 1985 Payment of Bonus Act
FEMA
Contract Labor Act
Central Sales Tax Act,1956 Prevention of Money
Laundering Act, 2002
EPF
ESI
Gratuity Act
Child Labour (Prohibition &
Regulation) Act, 1986

17. Central Laws
Corporate Laws
Maximum
Existing Minutes/Stat
Shareholders Power to investment/lo
Board of utory
of Company take decision an to be
Directors Registers
given

18. Industry Specific Laws
Drugs and Cosmetics Act
Central Motor Vehicle Rules
The Batteries(Management and Handling) Rules,
2001
Petroleum and Natural gas Act
Boilers Act
Mines and Minerals Act
Electricity Act

19. State Laws
Himachal Pradesh Motor Vehicles Taxation Act,
1972
Stamp Duty Act
The Madhya Pradesh Sale of Khaddar Act, 1953
The Uttar Pradesh State Commission for Women
Act, 1997

20. Material Contracts and Agreements
All Exclusive Supplier Agreement
All Exclusive Customer Agreement
All Exclusive Sole Selling Agreements
All major and material Contract with Government
Lease Agreement
All other major and material contract with any party affecting the
business

21. Outstanding Litigations
Cases filed by Company
Cases filed against Company
Legal Notice received
Legal Notice issued
Cases filed against promoters

22. Assets and Immovable Property
Immovable Property- Original Title deeds
Lease deed/Rent Agreements
Motor Vehicles RC
Plant and Machinery warranty invoices
Other assets based upon Industry

23. Registration and License
Certificate of Incorporation
Direct Tax Registration
Indirect Tax Registration
Employer Based Registration
Industry Based License
IEC Code
Environment Law
Industry License
Permission to carry on business by any statutory authority- Telecom
License, Real Estate Development, Insurance Stock Broker, NBFC

24. Insurance and Risk Management
All insurance policies
Check whether assets are appropriately insured
Status of claims filed by Company against insurance Company
Identification of risk areas

25. Human Resource
Key Managerial Plant and location
Employer on pay Contract labor
Personnel of wise employee of
roll employed
Company company

26. Intellectual Property Rights
Registered Pending
Copyrights Patent
Trademark IPRs

27. Online Search about Company
Verify the following websites to know more about Company and defaults
 www.sebi.gov.in
 www.mca.gov.in
 www.watchoutinvestor.com
 www.crisil.com
 www.rbi.org.in
 www.nseindia.com
 www.bseindia.com
 www.google.com
 www.corporatelens.com*
* Launching soon

28. Materiality or Non- Materiality
“Any information which may affect the decision of investor
for investment is said to be material.”
 Initial Discussion with investor about materiality of diligence
 Defining the scope of diligence based upon discussion with
investor
 Inform to Target Company about materiality of diligence

29. Financial Liability
Financial Liability
under each Head
Fixed Contingent
 Investor wishes to be informed about financial liability in each part of
diligence
 Estimation of penalty clause of relevant law
 Estimation of liability, which may impose on Company, if arises

30. Role of Due Diligence
“Although due diligence focuses on negative
information, the aim is not to raise obstacles to
transactions, but rather to facilitate transactions by
identifying problems and risks and by devising
solutions to problems or mechanisms to reduce or
manage the risks involved in acquisitions.”

31. Thank You!
Arun Gupta
Partner
Corporate Professionals
Advisers and Advocates
D-38, South Ex-Part-1, New Delhi - 110 049, India, (B): 09810275571, +91 11 40622214
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