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DUE DILIGENCE OF ACCOUNTS/FINANCIALS

WHEN DUE DILIGENCE IS REQUIRED?

  1. Merger
  2. Acquisition
  3. Funding a start up
  4. Privatization
  5. Asset tracking
  6. Investigation
  7. The signing of any major contract.

ADVANTAGES & BENEFITS

  1. The Due Diligence process is a manual tool to check that the business you want to purchase is –
  • Financially stable,
  • Legally sound,
  • Check the stability of the Company,
  • Knowing all the essential facts of the Company
  1. It is required to be examined so that the buyer or acquirer can make an effective decision
  2. It ensures a health check for the Company by exercising proper planning and execution.
  3. Minimize the chances of acquiring unknown liabilities or risks
  4. Identifying existing issues or problems of the business that may grow into higher proportions giving rise to unexpected liabilities in the future.
  5. Determining the value of the business and accordingly negotiate the correct price
  6. It is also undertaken as a sign of good corporate governance.

CHECKLIST UNDER DUE DILIGENCE

  1. The Certificate of Incorporation
  2. The Memorandum of Association
  3. The Articles of Association
  4. Financial Statements
  5. Income Tax Returns
  6. Bank Statements
  7. Analysis of major customer accounts
  8. Analysis of profit margins
  9. Examination of internal control procedures
  10. Tax registration certificates
  11. Examination of Company order book and sales pipeline
  12. Shareholding structure
  13. Statutory receipts
  14. Property documents
  15. Intellectual Property Certification or Application
  16. Utility bills like electricity bills, water bills
  17. Environmental audits, license, and permits
  18. The Organization chart and biographical information
  19. Labour disputes, if any
  20. Employment and loan agreements
  21. Employee benefits documents
  22. Employment manual and policies
  23. Operational records related to the list of company’s suppliers, monthly manufacturing capacities and yield, the backlog of production, inventory reports etc.

FAQs

Due diligence and audit is not the same thing. Undergoing an audit is more of an internal review. On the other hand, financial due diligence is almost always conducted in an external capacity. Due diligence does have standard procedures, and it overlaps with an inspection in purpose and method.

Carrying out a detailed investigation of the target company helps the potential buyer to correctly assess relevant financials of the company so that the chances of acquiring unknown risks and unexpected liabilities are minimized. Based on the due diligence advisory report, the buyer is able to determine the true value of the business and negotiate accordingly.

Due Diligence is extremely important in case of Mergers and Acquisitions as well as privatization of companies.

All documents related to the operations, HR, finance, sales & marketing and legal documents are thoroughly reviewed as part of the due diligence process.

Yes, it is appropriate to know the legal compliances made by the Company up to date before entering into Shareholders agreement with the Company.

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