#Legal due diligence

[saigonlawyers]

Legal Due Diligence consulting service

One of the common reasons that lead to the failure of M&A transactions is the insufficiency of the basic information about parties. To avoid risks, and enhance the success rate of M&A transactions, many companies pay huge attention to Due Diligence, especially Legal Due Diligence. Realizing the demand of companies on the Legal Due Diligence process, Apolo Lawyers (Hotline: (+84) 903.419.479) provides the Legal Due Diligence consulting service, which helps our clients get the success in Legal Due Diligence in particular and in M&A transactions

In general, there are many criteria when evaluating a business, including: Financial Due Diligence, Legal Due Diligence, Tax Due Diligence, and Intellectual Property Due Diligence,… But Legal Due Diligence plays an important role in Due Diligence.

1. Why do we need to implement Legal Due Diligence?

Legal Due Diligence aims to find out, review legal information and assess the legal risk of the business. As spoken above, Legal Due Diligence plays an important role in Due Diligence in particular and M&A transaction in general. Before the company signs any contract, it is necessary to understand the “health” of the partner to be able to make a decision whether to buy, cooperate or invest with that company or not? Is the business value offered by the seller reasonable? If not, what is the basis for negotiation and negotiation in the M&A deal?

No investors can risk pouring money into a business that lacks transparency. The discovery of legal loopholes in the business can greatly affect the investment process because it can prolong the time of agreement between the parties.

2. The necessary documents for Legal Due Diligence

The longer the business has been in operation, or the larger the company, the greater the number of documents that need to be verified.

The documents that companies need to focus on when performing Legal Due Diligence of partner businesses or customers:

2.1. Establishment and operation dossier

Certificate of business registration

Investment certificate/Certificate of investment registration/Approval to allow registration of the purchase of contributed capital/shares for foreign investors/Business license.

Outward investment certificate (applicable to all countries and territories where the enterprise has investment activities – directly or indirectly)

Certificate of operation registration of branch/representative office/business location.

Enterprise charter

List of shareholders/founding members of the enterprise

Dossier for adjustment or change related to business registration information and contents:

Minutes of the Board of Directors / Board of Members / General Meeting of Shareholders;

Decision/ Resolution passed by the general meeting of shareholders/board of management/members council;

Relevant contracts and agreements;

Other relevant documents.

Tax code registration certificate;

Any other relevant documents (if any).

2.2. Capital and owner

Minutes, agreements, capital contribution contracts between the founders/members / founding shareholders / existing shareholders;

Agreements, contracts for purchase and sale - transfer of shares/contributing capital/bonds, convertible loan contracts and other relevant agreements related to the transfer/contribution/issuance of shares;

List of members/ Register of shareholders/ Certificate of capital contribution/ Certificate of share ownership and equivalent documents (if any);

Minutes of valuation of assets contributed as capital/Deed on valuation of assets contributed as capital;

Documents proving the transfer transaction for the issue of capital contribution, share purchase/Written receipt or other equivalent certification in this regard;

Any other relevant documents.

2.3. Property

List of assets owned/rented or leased/otherwise used by the business.

Registration documents/Certificates/Protection documents/Registration documents/Agreements related to intellectual property objects of the enterprise/business owner (including trademarks) , industrial designs, inventions, utility solutions, etc.).

Contract/Invoice/Certificate of ownership/use and all documents related to the ownership of fixed assets of the enterprise.

Loan/mortgage/guarantee/purchase/other arrangements affecting the ownership of enterprise of current and future assets (if any).

2.4. Management personnel and organizational structure

List and personal information of:

Board of members / Board of Directors;

General Meeting of Shareholders;

Key personnel of the enterprise (manager level/head of department and above).

Minutes, decisions, notices related to hiring/appointment/other forms of recruitment/removal/dismissal/disciplinary handling of personnel managing and operating the enterprise:

Chairman of the Board of Directors/ Chairman of the Council of Members;

Member of the Board of Directors/the Council of Member;

General Director/Director/Deputy Director;

Head of branch/representative office/business location;

Managing Director / Sales Director;

Chief Accountant/Finance Director;

Checker;

Directors, heads of other departments (from management level/head of department upwards).

All meeting minutes, resolutions/decisions of the Board of Directors/Board of Members and the General Meeting of Shareholders on business matters.

All meeting minutes of the Board of Directors, decisions of the General Director/Director (if any).

Corporate internal policy documents, including (applicable to managers/heads of departments and above):

Work assignment mechanism;

Authorization and representation mechanism;

Principles of revenue and expenditure and reporting;

Management and operating mechanism of the enterprise;

Job description;

Commitment to responsibility, commitment to confidentiality (if any).

Any other relevant documents (if any).

2.5. Labor

Types of labor contracts of indefinite duration;

Labor contract with definite term;

Probationary contract;

Agreement on labor transfer/labor hire;

Vocational training contract/ Apprenticeship contract/ Agreement/ Other labor agreement in any form;

Labor regulations;

Collective labor agreement;

Employee handbook/Work manual/Office rules and relevant internal personnel documents (if any);

List when declaring/reporting employers;

List of employees entitled to social insurance premiums and personal income tax deduction, together with certification from competent authorities;

Registered salary scale and table;

Invoices, vouchers or other documents proving the payment of salaries, allowances, other support regimes, social insurance and other insurances;

Internal labor regulations:

Regulations on handling of labor discipline;

Confidentiality Regulations;

Regulations on bonus - allowance - support;

Regulations on rest and working regimes; Other regulations (if any).

Operational regulations, establishment decision, list of Executive Committee, trade union members (Attached with personal information of each member);

Documents certifying the fulfillment of the obligation to pay trade union dues, financial documents on trade union activities at the enterprise, other documents on trade unions (if any);

Labor management book;

Other decisions, policies and announcements related to the labor of enterprise;

All documents and records on handling labor discipline, labor disputes, termination/suspension/adjustment of labor relations (if any).

2.6. Contract

Contract of lease/cooperation in the use of premises/leasing/transfer of premises/other contracts related to land use rights and land-attached assets in the operation of the enterprise.

Business cooperation contract;

Contract in the form of service provision;

Contracts in the form of goods sale and purchase;

Other economic contracts/transactions (if any), including the following fields:

Agency;

Processing;

Import and export;

Promotion;

Carriage;

Rental activities.

Written authorization/approval/appointment of personnel to sign/participate in the performance of respective contracts/transactions.

2.7. Tax, and Accounting

Set of annual financial statements.

Value added tax declaration.

Enterprise accounting book (general diary);

Bank records;

Output vouchers and beginning of years;

Receipts, certifications, notices on the fulfillment of the annual tax payment obligation;

Details of corporate debt;

Documents, invitations, notices, decisions on the sanction, arrears, requests for explanation and other requests of functional agencies (if any);

Documents and information on tax disputes and complaints (if any);

Enterprise audit report from financial years (if any);

Dossiers of official dispatches directing/incentives - exemptions and reductions directly applicable to enterprises and relevant decisions and announcements (if any).

2.8. Bank and credit

List and details of bank accounts including personal accounts designated to receive payments (if any);

Information of the registrant/name of another account of the Enterprise/Authorized person to manage;

Official confirmation from the bank about the status of the business account and the statement of transactions of the business account in the last 3 financial years;

All other credit contracts and agreements with the Bank/Organization designated by the bank/Other relevant organizations (if any).

2.9. Business conditions – License

All licenses/certifications/approvals/certifications of notification obligations, other registrations for any type of business activity (licenses) or documents proving Business eligibility legal equivalent;

List of registered business lines of the enterprise;

Details of dossiers and documents of adjustment/supplementation/revocation related to the contents of the licenses;

Other types of licenses depend on the type of business and business lines.

2.10. Sanctions, Disputes and Litigation

List and documents related to the disputes of the Enterprise/Founding Shareholder/Founding Member. Court or arbitration proceedings, prosecutions or claims relating to the business, whether completed, incomplete or threatened;

Minutes of decisions on sanctioning administrative violations/ inspections/ inspections applied by competent state agencies to enterprises and other relevant documents (if any);

In addition, during the appraisal, the enterprise may also need to present internal issues, such as internal disputes within the enterprise.

>>> Read more: General process of an M&A - Due Diligence (DD) Deal

>>> Read more: Legal advice on the transfer of investment project in Vietnam

3. How can Apolo Lawyers assist?

Apolo Lawyers is a law firm operating on the foundation of taking prestige and responsibility first. Our lawyers are high-professional and experienced, always working with dedication, enthusiasm, and efficiency. We always provide professional legal services with outstanding quality. We also keep the information of our clients completely confidential. We always bring our customers peace of mind and maximum benefits in each case.

About Legal Due Diligence consulting service, we support our Clients to do no limit but including the following tasks:

Conduct legal review and appraisal of important legal documents, documents and documents signed and issued during the establishment and operation of the target company

Check financial status, organizational structure, business registration content, employment status, transaction contracts, disputes and proceedings of the company, etc.

Prepare a legal due diligence report with details of the content mentioned by the investor.

Consulting, building an information confidentiality agreement for the parties before proceeding to the next stages of the M&A transaction.

Consulting, offering solutions for cases where there are factors affecting the legal feasibility of the transaction.

If you have any difficulties or questions about the procedure for the merger in Vietnam as well as other issues, please contact Apolo Lawyers via email at contact@apolo.com.vn or Hotline – (+84) 903.419.479 for the best legal advice and support.

For further information, please contact us: Apolo Lawyers

APOLO LAWYERS

[pettersonbennett]

The purposes of tax due diligence is for a professional firm to review the tax affairs of the target in order to give the purchaser comfort as to the tax status of the intended target.

[poojaagrawal2902]

A list of legal suggested reading for home buying

Property investment comes with challenges and complicated procedures and not to forget, it is a huge monetary intensive process. If the buyer isn’t careful enough, even a small error can cause a great deal of inconvenience. So it is very critical to review every bit of the process carefully especially when evaluating any property documents. For every home buyer, especially a first-time buyer, it is advisable to take any and all professional help to ensure that the investment will allow having a sense of peace and security.

Practising legal due diligence is important as it will help reduce the risks associated with a real estate transaction where all your hard-earned money is at stake. Ignoring even the slightest error can lead you into nonessential disputes or even cost your homeownership. So what checks are included in the legal due diligence of a property?

Verifying the title of the seller: The title is a legal document by the seller stating the buyer as the rightful owner of the property on sale. The buyer must run a check on the title deed to discover its nature and its existence with the seller.

Verifying the identity of the seller: The identity of the seller is just as important as the title. A buyer should be certain of the seller’s identity under all circumstances. A buyer should know the identity, his residence status, the nationality of the seller and his ability to pitch in the property. Knowing the identities of the owners in case the property is held jointly. Also, know if the seller is an organization, firm, or society and check the documents related to the authorization for the execution of a sale.

Land use permissions and approvals: A buyer must be certain of the master plan of the property whether under-construction or ready to move before making a bid. The project must satisfy all the necessary authorizations from the Town Planning Authority which has to be in accordance with the zoning plans. In any situation where the development is different from the notified zoning norms, obtaining orders from the local municipal authority is mandatory. The property should satisfy the standards and the regulations for infrastructure facilities laid down by the government bodies.

Occupancy Certificate: An essential step of buying a home is that the property should comply with the policies by the local authorities. The clearance to the property comes in the form of Occupancy Certificate. Failing to obtain OC can lead the buyer to penalties or maybe even worse, demolition of the property.

RERA Compliance: The government has made it mandatory for the developers to register their projects with the authority appointed under the act. The buyer purchasing the property should check if the property is registered with the RERA authority. Check the online portals of RERA to know about the insights of the project and the developer to make an informed decision.

Inspection of the property: A property inspection is an important step but is skipped most times. While the buyers can examine the property with extreme care, it is always advisable to seek professional help by hiring a home inspection service.

[enterslice11noida-blog]

What is Legal Due Diligence and How it is Beneficial-Enterslice Image Source:- https://enterslice.com/due-diligence-services

[pettersonbennett]

Legal Due Diligence (audit) - is a system of measures and procedures for legal expertise of the enterprise. The purpose of Due Diligence is to identify legal risks associated with the purchase of an investment object or the formation of objective information about it.

[goldscors]

Legal Due Diligence

PRE-INVESTMENT LEGAL ISSUES

General Considerations

Business form: What is the company’s business form?

C corporation, S corporation, or Limited liability company (LLC)

Familiarity to venture capitalists and public markets.

Stability of legal treatment

Tax considerations for investors

Tax considerations for companies

State of incorporation: Assuming the company is organized as C corporation, in what state did it incorporate?

Organizational documents and govermental filings: Are the company’s organizational documents and related governmental filings complete, correct, and current?

Litigation: Is the company involved in any litigation of a material nature?

Intellectual Property Protection

General: What are the company’s intellectual property assets and how important are such assets to the success of the company?

Intellectual property competence: Has the company gained a sufficient understanding of its intellectual property positions and its intellectual property potential?

Support for the development of intellectual property assets: Did the company receive support from govermental organizations, industry organizations, or nonprofit organizations in the development of its intellectual property?

“Spun-out” intellectual property assets: Were any of the company’s intellectual property assets “spun-out” of another company?

Patents: Are any of the company’s intellectual property assets protected by U.S. patents?

Patent value: If the company does hold patents, are they valuable to the company?

Patent integrity: If the company hold patents, do they have suffice legal integrity?

Copyrights: Are any of the company’s intellectual property assets protected by copyright?

Copyright value: If the company does hold copyrights, are they valuable to the company?

Copyright integrity: If the company hold copyrights, do they have suffice legal integrity?

Trade secrets: Are any of the company’s intellectual property assets protected by the trade secret laws?

Trade secret value: If the company does have trade secrets, are they valuable to the company?

Trade secret structural protections: Are structural protections in place to protect the company’s trade secrets?

Intellectual property licenses: Is the company licensing intellectual property from another company or licensing technology to another company?

Intellectual property license value: If the company is a licensor or a license of technology, are its licenses valuable?

Intellectual property litigation: Is the company involved in or vulnerable to any intellectual property litigation of a material nature?

Invention assignment agreement: Are all of the company’s founders and employees covered by invention assignment agreements?

Non-competition agreements: Are the company’s key employees covered by non-competition agreements?

Other Potential Pre-transaction Issues

Existing approval rights: Do any existing investors in the company, those from prior rounds of financing, hold “approval” rights? 

Existing rights of first refusal: Do any existing investors in the company hold rights of first refusal?

Existing price-based anti-dilution rights: Do any existing investors in the company hold price-based anti-dilution rights? Almost all venture financing has some form of anti-dilution protection for investors. In the context of a venture financing, anti-dilution protection refers to protection from dilution when shares of stock of stock are sold at a price per share less than the price paid by earlier investors. This is known as price-based anti-dilution protection. Anti-dilution protection, along with the liquidation preference, are two of the fundamental features distinguishing preferred stock typically sold to investors from common stock generally held by founders and employees.

Transactional Legal Issues

Security Structure

Security: What is the nature of the security to be used for the investment?

Common stock

Debt

Preferred stock

Conversion rights: Will the investment security be convertible into another security, such as common stock?

Conversion terms: If the investment security is convertible, what conversion terms will be available?

Convertible preferred stock

Convertible bridge notes

Simple or mechanical anti-dilution protection: if the investment security is convertible, will anti-dilution protection for structural changes in the common stock of the company be available? (Eduardo Saverin situation in The Social Network movie)

Price-based anti-dilution protection: If the investment security is convertible, will anti-dilution protection against the company issuing stock at an effective price that is below your conversion price be available?

“Full ratchet” anti-dilution protection

Broad-based weighted anti-dilution protection

Narrow-based weighted anti-dilution protection

Carve-outs: If some form of price-based anti-dilution is available, what exceptions is the company seeking for issuances that will not trigger adjustments to the conversion price?

Pay-to-play provisions: If some forms of price-based anti-dilution is available, will a pay-to-play provision be connected with this protection?

Dividend preferences: If the investment security is preferred stock, will it have a dividend preference?

Interest: If the investment security is a debt instrument, what will be the interest payment terms?

Zero coupon

Split coupon

Warrants: Will warrants be attached to the investment security?

Warrant terms: If warrants will be attached to the investment security, what warrant term will be available?

Control Mechanisms

Board representation: Will you have representation on the company’s board of directors?

Extraordinary voting rights: Will extraordinary voting rights (or “voting switch” rights) be available?

Board observer rights: If board representations is neither available nor appropriate, will board observer rights be available?

Positive and negative covenants: To what covenants will the company be subject?  Positive covenant is a bond covenant that requires the issuer to take certain actions. For example, a positive covenant may require an issuer to maintain enough liquid assets to cover the principal of the bond. More commonly, a positive covenant requires the issuer to have a certain amount of insurance or submit to periodic audits. It contrasts with a negative covenant, which prevents the issuer from taking the enumerated actions. 

Repurchase and vesting provisions: Will the company’s team management team members be subject to repurchase and vesting provisions?

Staged capital commitments: Will the commitment of capital to the company be staged in several tranches or closings?

Right of first refusal: Will you have a right of first refusal (or preemptive right) to participate in future financings of the company?

Pay-to-play provisions: If you will be given the right to participate in future financings of the company, will a  “pay-to-play” provision be attached to that right?

Redemption rights: Will redemption rights be triggered if certain milestones are not met?

Harvest Mechanisms

Registration rights: Will you have registration rights?

Demand registration rights: Will you have demand registration rights?

Short-form registration rights: Will you have short-form registration rights?

Piggyback registration rights: Will you have piggyback registration rights?

Registration expenses: Will the company pay the expenses of registration?

Rule 144 requirements: Will the company agree to file all necessary reports and take all necessary actions required by Rule 144?

Drag-along rights: Will you have drag-along rights?

Anti-lockout rights: Will you have anti-lockout rights?

Tag-along rights: Will you have tag-along (or co-sale) rights?

Redemption rights: If the investment security is preferred stock, will you have redemption rights?

Redemption prices: If the investment security is preferred stock and you will have redemption rights, what will the redemption price be?

Debt repayment terms: If the investment security is debt, what will be the repayment terms?

Liquidation preferences: If the investment security is preferred stock, will you have a liquidation preference?

Secured creditors

Unsecured nonsubordinated creditors

Subordinate creditors

Preferred stockholders

Common stockholders

Deemed liquidation: Will a merger or acquisition be treated as a deemed liquidation?

Participation rights: If the investment vehicle is preferred stock, will there be participation rights that extend beyond any stated liquidation preference?

Miscellaneous provisions

Representations and warranties: To what representations and warranties will the company agree?

Venture Capital Due Diligence: A Guide to Making Smart Investment Choices and Increasing Your Portfolio Returns - Justin J. Camp