Legal due diligence is an important and indispensable step in the merger and acquisition (M&A) process.

This article was consulted by Lawyer Nguyen Quang Trung

This helps the buyer better understand the legal situation of the target company, identify potential legal risks, and ensure that the transaction takes place legally and smoothly. Below is a detailed analysis of the issues that need to be done in legal due diligence on a target company before conducting an M&A transaction:

1. Checking legal status

First of all, the buyer needs to check the legal status of the target company. This includes verifying the business license, company charter, and other relevant documents to ensure that the target company is legally established and operating. The buyer also needs to check whether the target company fully complies with the legal regulations on business registration and other legal requirements.

2. Checking asset ownership

The buyer should check the ownership of the target company’s assets, including real estate, fixed assets, and other assets. This includes verifying ownership certificates, sales contracts, and other relevant documents to ensure that the target company has legal ownership of these assets. The buyer should also check whether these assets are mortgaged, pledged, or subject to other legal obligations.

3. Checking contracts and commitments

The buyer should check the target company’s contracts and commitments, including sales contracts, leases, employment contracts, and other contracts. This will help the buyer better understand the target company’s rights and obligations under these contracts, as well as potential legal risks. The buyer should also check whether the target company is fully compliant with the terms of these contracts and whether there are any legal disputes related to these contracts.

4. Tax check

The buyer should check the target company’s tax situation, including tax returns, tax invoices, and other relevant documents. This will help the buyer determine whether the target company is fully compliant with tax laws and whether there are any outstanding tax debts. The buyer should also check whether the target company has been subject to tax audits or tax penalties in the past.

5. Labor check

The buyer should check the target company’s labor situation, including labor contracts, payroll, other relevant documents, and compliance with mandatory insurance payments. This will help the buyer better understand the target company’s rights and obligations towards its employees, as well as potential legal risks. The buyer should also check whether the target company fully complies with labor laws and whether there are any labor-related legal disputes.

6. Check the environmental protection situation

The buyer should check the target company’s environmental protection situation, including environmental permits, environmental impact assessment reports, and other relevant documents. This helps the buyer determine whether the target company fully complies with environmental laws and regulations and whether there are any environmental violations. The buyer should also check whether the target company has been sanctioned for environmental violations in the past.

7. Check the intellectual property situation

The buyer should check the intellectual property situation of the target company, including patents, trademarks, copyrights, and other intellectual property assets. This helps the buyer determine whether the target company has legal ownership of these intellectual property assets and whether there are any legal disputes related to the intellectual property. The buyer also needs to check whether the target company fully complies with the intellectual property laws.

8. Checking disputes status

The buyer should check the disputes status of the target company, including lawsuits, disputes, and other legal issues. This helps the buyer better understand potential legal risks and determine whether the target company is affected by these legal disputes. The buyer should also check whether the target company is fully compliant with court decisions and other legal authorities.

9. Checking insurance status

The buyer should check the insurance status of the target company, including insurance contracts, insurance policies, and other relevant documents. This helps the buyer determine whether the target company is fully and legally insured and whether there are any insurance-related risks. The buyer should also check whether the target company is fully compliant with the terms of these insurance contracts.

10. Checking financial status

The buyer should check the target company’s financial status, including financial statements, balance sheets, and other relevant documents. This helps the buyer better understand the target company’s financial situation and identify potential financial risks. The buyer should also check whether the target company is fully compliant with financial regulations.

11. Checking management system

The buyer should review the management of the target company, including its organizational structure, management processes, and other relevant documents. This will help the buyer better understand the organizational structure and management processes of the target company and identify potential management risks. The buyer should also check whether the target company fully complies with the legal regulations on management.

12. Check the international cooperation situation

The buyer should check the international cooperation situation of the target company, including international cooperation contracts, import-export licenses, and other relevant documents. This helps the buyer better understand the international cooperation situation of the target company and identify potential international risks. The buyer should also check whether the target company fully complies with the legal regulations on international cooperation.

13. Check the compliance with internal regulations

The buyer should check the internal regulations of the target company, including internal regulations on management, business, finance, and other areas. This helps the buyer better understand the internal regulations of the target company and identify potential internal risks. The buyer should also check whether the target company fully complies with internal regulations.