Legal due diligence goes beyond running the tires of the car. It is a comprehensive investigation that uses lawyers and CPAs to verify documents and data. It involves a comprehensive review of various areas, including a legal review what is a data room which includes contracts, litigation liabilities and intellectual property, as well as corporate records and regulatory compliance, an audit of financials that includes accounting policies, financial statements and tax returns. It also involves a review of the management, organizational structure and the products, services marketing, sales facilities and equipment.
Based on the magnitude of the deal and complexity of the company, the legal due diligence process can be extremely lengthy, especially for large public companies with massive piles of documents that lawyers have to sort through. Many legal departments are now making use of technology to streamline the process. For instance an online platform for document review coupled with AI tools.
Before you begin the legal due diligence process, establish the framework and purpose for the investigation. It is beneficial to make an agenda of key areas that need to be addressed and to ensure that the legal team is able to agree on a strategy with the business owner. It is also essential to determine which areas require professional input from the company. For example, a legal due diligence review of an IP holding company might include inquiries from an intellectual property specialist to determine whether the company has any significant patents or other intellectual property rights and whether there are any infringement actions that are pending or threatened.