Legal Due Diligence: An Investor Perspective

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What is Legal Due Diligence?
Why Legal Due Diligence?
Role of Law Firm in Legal Due Diligence.
Corporate Compliance Management

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Legal Due Diligence: An Investor Perspective

  1. 1. LEGAL DUE DILIGENCE An Investor Perspective
  2. 2. What Is Legal Due DiligenceDue diligence is the level of judgment, care, prudence, determination, and activitythat a person would reasonably be expected to do under particular circumstances.Due diligence assesses the risks and opportunities of a proposed transaction. ithelps to reduce the risk of post-transaction unpleasant surprises. It also increasesthe possibility of achieving investment objectives.
  3. 3. “Strengthening the Foundation” Growth Due Diligence Stability
  4. 4. Acquirer/ Joint Venture Partner/Investor Investor is the one who proposes to take some stake in an existing Company. Acquirer is the one who proposes to purchase majority of shares of an existing Company. Joint Venture Partner is the one who joins hands to do business with other partner.
  5. 5. Why Legal Due Diligence An acquirer/JV Partner would want to undertake legal DD to assess Risks Opportunities
  6. 6. Why Legal Due Diligence History of Company Informed decision about Reduces risk of Investment Investment Outstanding litigation against Estimation of current and future the company liabilities Estimation of compliance level of Company
  7. 7. Role of Law Firm in Legal Due Diligence • Assess the risk factors and investment • Interaction with management and auditor of Company • To understand the operation of Company • To understand the decision making hierarchy in Company • Visit at Plant site • To understand the compliance practice in company
  8. 8. Role of Law Firm in Legal Due Diligence Company History & Background Capital Structure & Evolution Management & Key Managerial Personnel Identification of laws applicable to Company Corporate Compliance Management Material Contracts & Agreements
  9. 9. Role of Law Firm in Legal Due Diligence Outstanding Litigations Assets and Immovable Property Registration and Licens Insurance & Risk Management Human Resource IPR Others as per company
  10. 10. Company’s History and Background Change in Corporate Age of the name Basics of Office and Others company and address company Plant of company location
  11. 11. Capital Structure and Evolution Authorized Share Capital Issued/Subscribed/Paid-up Capital History of Capital Evolution Convertible or redeemable instruments
  12. 12. Management and Key ManagerialPersonnel Details about Board of Directors Profile of Board of Directors Key employees like CEO/CFO of Company Organization Structure of Company
  13. 13. Identification of laws applicable tocompanyUnderstand the business of CompanyUnderstand the location of businessPrepare a list of laws applicable to company
  14. 14. Corporate Compliance Management Corporate Compliance Management Industry Central laws State laws specific laws
  15. 15. Central Laws Company Laws and Rules Securities Laws Environment Laws and Regulations Air (Prevention and Control Companies Act, 1956 SEBI Act, 1992 of Pollution) Act,1981 Securities Contracts The Environment Other Rules and Regulations (Regulation) Act, 1956 (Protection) Act ,1986 The Water (Prevention and The Depositories Act,1996: Control of Pollution) Act,1974 The SEBI(SAST) Regulations, Forest(Conservation)Act,19 2011 80
  16. 16. Central Laws Taxation Laws Industrial Laws Others Central Excises Act,1944 Factories Act Arbitration and Conciliation ActCentral Excise Tariff Act, 1985 Payment of Bonus Act FEMA Contract Labor Act Central Sales Tax Act,1956 Prevention of Money Laundering Act, 2002 EPF ESI Gratuity Act Child Labour (Prohibition & Regulation) Act, 1986
  17. 17. Central Laws Corporate Laws Maximum Existing Minutes/Stat Shareholders Power to investment/lo Board of utory of Company take decision an to be Directors Registers given
  18. 18. Industry Specific Laws Drugs and Cosmetics Act Central Motor Vehicle Rules The Batteries(Management and Handling) Rules, 2001 Petroleum and Natural gas Act Boilers Act Mines and Minerals Act Electricity Act
  19. 19. State Laws Himachal Pradesh Motor Vehicles Taxation Act, 1972 Stamp Duty Act The Madhya Pradesh Sale of Khaddar Act, 1953 The Uttar Pradesh State Commission for Women Act, 1997
  20. 20. Material Contracts and Agreements All Exclusive Supplier Agreement All Exclusive Customer Agreement All Exclusive Sole Selling Agreements All major and material Contract with Government Lease Agreement All other major and material contract with any party affecting the business
  21. 21. Outstanding Litigations Cases filed by Company Cases filed against Company Legal Notice received Legal Notice issued Cases filed against promoters
  22. 22. Assets and Immovable Property Immovable Property- Original Title deeds Lease deed/Rent Agreements Motor Vehicles RC Plant and Machinery warranty invoices Other assets based upon Industry
  23. 23. Registration and License Certificate of Incorporation Direct Tax Registration Indirect Tax Registration Employer Based Registration Industry Based License IEC Code Environment Law Industry License Permission to carry on business by any statutory authority- Telecom License, Real Estate Development, Insurance Stock Broker, NBFC
  24. 24. Insurance and Risk Management All insurance policies Check whether assets are appropriately insured Status of claims filed by Company against insurance Company Identification of risk areas
  25. 25. Human Resource Key Managerial Plant and location Employer on pay Contract labor Personnel of wise employee of roll employed Company company
  26. 26. Intellectual Property Rights Registered Pending Copyrights Patent Trademark IPRs
  27. 27. Online Search about Company Verify the following websites to know more about Company and defaults  www.sebi.gov.in  www.mca.gov.in  www.watchoutinvestor.com  www.crisil.com  www.rbi.org.in  www.nseindia.com  www.bseindia.com  www.google.com  www.corporatelens.com* * Launching soon
  28. 28. Materiality or Non- Materiality “Any information which may affect the decision of investor for investment is said to be material.” Initial Discussion with investor about materiality of diligence Defining the scope of diligence based upon discussion with investor Inform to Target Company about materiality of diligence
  29. 29. Financial Liability Financial Liability under each Head Fixed Contingent Investor wishes to be informed about financial liability in each part of diligence Estimation of penalty clause of relevant law Estimation of liability, which may impose on Company, if arises
  30. 30. Role of Due Diligence“Although due diligence focuses on negativeinformation, the aim is not to raise obstacles totransactions, but rather to facilitate transactions byidentifying problems and risks and by devisingsolutions to problems or mechanisms to reduce ormanage the risks involved in acquisitions.”
  31. 31. Thank You! Arun Gupta Partner Corporate Professionals Advisers and AdvocatesD-38, South Ex-Part-1, New Delhi - 110 049, India, (B): 09810275571, +91 11 40622214 Our Gamut of Services Corporate Restructuring | Securities Laws & Capital Market Advisory | Corporate Law Advisory & Due Diligence | Global Business Structuring |Corporate Taxation | Forex & Overseas Transactions | India Entry Services| Deals & Commercial Agreements | Intellectual Property Rights www.cpadvocates.in

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