Why Is Legal Due Diligence Necessary?
Some of the primary reasons for conducting legal due diligence are outlined below. Better Understand Your Business. Legal due diligence is necessary to give the buyer the information that it needs to learn about your target company and to structure its purchase of your company. In addition, legal due diligence will help the buyer’s counsel to become acquainted with your company so that they can communicate effectively with your company’s counsel and with the buyer in structuring the transaction. Help to Value the Target Company. The buyer will use the information learned in the legal due diligence process to determine how much to pay for your company. In addition to carefully examining obvious indicators of value such as your company’s cash flows and balance sheet, the buyer and its counsel will search for more subtle indicators of value or potential liabilities in things such as (i) your organizational documents and important contracts (e.g., is your company restricted in how or where
