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Due Diligence Services

All about Due Diligence requirement in India along with Due Diligence advisory are covered here.

Package Inclusions –

  • Due Diligence of People
  • Due Diligence of Financial
  • Due Diligence of Regulatory
  • Due Diligence of Environmental
  • Advisory on Due Diligence

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What does Due Diligence mean?

Due diligence is one of the easiest approaches for companies to make rational choices about the situation. Due diligence is usually undertaken by a corporation before any market sale, private equity investment, bank loan funding, etc. The circumstances of the individual case are analyzed using a framework to establish a better view of the situation so that better and more efficient decision-making is possible.

What are the core purposes of Due Diligence?

1. Due Diligence is a basic tool to verify that the company you want to buy is –

  • Stable financially
  • Legally sound,
  • Verify the stability of the Company,
  • Knowledge of all the company's necessary facts

2. The company has to be examined properly which enables the buyer or acquisition in making informed and efficient decision.

3. Ensures a health check for the Company by careful preparation and implementation.

4. Reduces the likelihood of acquisition of uncertain liabilities or threats

5. Recognizing existing business issues or concerns that may escalate to higher amounts, resulting in unforeseen liability in the future.

6. Assessing the value of the business and therefore negotiating the right price.

7. It is also being undertaken as a gesture of good corporate governance.

What are the cases in which Due Diligence is required?

  • Merger of the company
  • Acquisition of the company
  • Funding a startup company
  • Privatization of the company
  • Asset tracking of the company
  • Investigation
  • The signing of any major contract.

What are the procedures in a Due Diligence Process?

Due diligence process typically consists reviewing the mandatory due diligence checklist points of the below mentioned important areas:-

  • Drafting the Non-Disclosure Agreement (NDA) is the initial step which is required to be executed between the concerned parties specifying the pre-determined terms and conditions of the business due diligence of the undertaking.
  • Operating Due Diligence – In this phase, due diligence advisory should gather and review records and documents related to company operating details.
  • Financial Due Diligence– The due diligence company must put concerns or analyze reports on topics related to the actual three-year financial statements of the target company, whether or not the accounts are audited, whether the earnings are increasing and diminishing, What are the future projections of the firm and whether the predictions are realistic or not, what kind of working capital will be required to continue the development of the company, what costs and expenditures are necessary to build the business, what is the debt situation, the maturity of the receivables, etc. 
  • Legal due diligence– Here due diligence surveys and experiments all relevant legal and regulatory documentation of the target company and even conversations with the related people. The goal is to test the possible legal risks. Documents pertaining to licensing, regulation, intellectual property rights, lawsuits, etc. are analyzed in depth.
  • The last step includes writing a document and recording the findings of the company due diligence process, which is then communicated with both parties.

What is the checklist of the Due Diligence?

Financial due diligence checklist, legal due diligence checklist, operational checklist, HR checklist etc are included in the checklist. Examination and evaluation of the various financial, legal and other types of documents includes the following:-

  • Incorporation Certificate of the company
  • The Memorandum of Association (MOA)
  • The Articles of Association (AOA)
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Certificates of the tax registration
  • Structure of the shareholding
  • Statutory receipts
  • Documents related to property
  • Intellectual Property Certification or Application
  • Utility bills like electricity bills, water bills
  • Environmental audits, license, and permits
  • The Organization chart and biographical information
  • Labor disputes, if any
  • Employment and loan agreements
  • Documents pertaining to the Employee benefits
  • Employment manual and policies
  • Operational records related to the list of company’s suppliers, monthly manufacturing capacities and yield, the backlog of production, inventory reports etc.

Nonetheless, the above M&A due diligence checklist requires to begin by reviewing the documents on the website of the Ministry of Corporate Affairs. In reality, Nominal fee for the review of the information available in relation to another organization is required to be paid to the Registrar of the Company.

It is also important to search for documents related to tax other than auditing the financial statements, data on the cash flow and assessment of the assets and liabilities of the business. The ESI/PF returns filed, ESI/PF payments done, ESI/PF payment calculation, payment of service tax/VAT/GST, TDS returns, TDS payments and TDS calculations, these are the tax related documents which forms the part of the due diligence checklist.

Although the M&A due diligence process takes money and time, it is the appropriate way to save a firm from potential financial disaster or irrevocable damage to the credibility of the acquiring company. Throughout today's digital business world, it is seen as a necessary measure to conform with legal and regulatory standards, as well as to promote organizational honesty and consumer confidence.

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