Legal Due Diligence of the Company
Conducting legal due diligence of the company
Doing business is often associated with various kinds of emerging risks. At the same time, the functioning of any organization, existing or being created, must comply with the requirements of the applicable rules of law. Considering that new laws are constantly being introduced into the legal field, old ones are being canceled, and the existing rules of law are constantly undergoing changes, it is often quite difficult to independently track and then apply them for a particular business. For the full-fledged activity of the company, which meets all the necessary requirements of the current legislation, it is customary to conduct a comprehensive legal due diligence, also such an audit is commonly called a “legal audit”.
As a rule, due diligence of the company reveals all violations of the requirements of the current legislation applicable to a particular type of entrepreneurial activity. At the same time, it should be noted that along with a comprehensive legal due diligence of the company, a legal audit of the hotel areas of its activities, specific local documents, counterparties or concluded (concluded) contracts can be carried out. Due diligence allows you to identify all violations of the current legislation and get competent recommendations for their elimination.
There are several main objectives of a legal audit:
- identification of violations of the law in order to further correct them;
- legal assessment of possible risks, including the risks of bringing the company's management or owners to liability, imposing penalties on the part of counterparties, as well as carrying out inspections by regulatory authorities;
- other objectives.
Along with the goals of conducting a due diligence, it is also important to note that due diligence allows you to identify the following risks:
- inspections by regulatory authorities;
- claims from employees;
- bringing the management or the owner of the company to account for violations of the law;
- application of penalties by counterparties, etc.
Regardless of the purpose of conducting a legal due diligence of an organization, often identified violations of the law have a positive effect on the further activities of the company. As a rule, a comprehensive audit of the organization for compliance with the norms of the current legislation is carried out by independent lawyers involved. In this regard, the independence of the law firm conducting the due diligence is important because the impartiality of specialists allows you to get the most positive effect from a due diligence. Conducting a legal audit is the following actions:
- study of constituent, permitting and title documents of the company;
- checking the organization's property, including documents establishing the rights to such property;
- verification of personnel documents and registration of labor relations;
- analysis and examination of contracts, both already concluded and planned for conclusion;
- analysis of accounting activity and tax reporting;
- analysis of court cases of the organization, both as a plaintiff and as a defendant;
- checking the company’s counterparties;
- analysis of the organization's website;
- checking the debt and identifying the causes of its occurrence.
It is often quite difficult for the head of the organization to assess the activities of the company and conduct a full-fledged legal audit, this is due to the large volume of tasks that the head needs to solve, the inability to impartially evaluate the work of employees, and the inability to track changing legislation. For these reasons, as a rule, the management of the company, interested in the full functioning of the company and its further development in compliance with all necessary legal norms, attracts independent experts to obtain a complete objective picture of the organization's activities.
As a result of a legal due diligence of the company, the manager gets a complete picture of his business, weaknesses and possible risks are identified, and the company’s management receives recommendations from legal experts to correct detected violations of legal requirements, in order to prevent them further. In most cases, after the audit, the management of the organization decides to conclude an agreement with the law firm that conducted the audit to eliminate the identified violations and bring the company’s activities and documents to the current legal norms.
It is also important to note that the results of a company's due diligence are confidential information, are not subject to public distribution, transfer to regulatory authorities, and are also used solely for the purposes determined by the company's management.
- Advising clients on the activities of legal entities
- Comprehensive due diligence of the company’s activities
- Identification of possible risks associated with violation or non-compliance with the law
- Formation of a report on the company’s activities in terms of the current legal norms, as well as further recommendations for eliminating identified violations