DUE DELIGENCE SIMPLE AND BASIC PPT

1. Due Diligence
and
Corporate Compliance
Management

4. Meaning of Due Diligence
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• There is no legal definition of the
term "due diligence".
• Simply put it is a detailed investigation of
the affairs of a company.

5. Meaning of Due Diligence
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It is the process of carrying out an investigative
analysis of the financial, legal and operating
activities of an entity in connection with a
proposed transaction that would result in a
significant change in the ownership or the
capital structure of the entity.

6. Aim of the Due Diligence
Process
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Identify problems within the business,
particularly any issues which may give rise to
unexpected liabilities in the future.

7. Ingredients of a successful
Due Diligence
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• Must be unbiased
• Should be carried out by
independent professionals.
• Requires the management’s co-operation
• Done with a positive attitude

8. Purpose of Due Diligence
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• Assess the reasonableness of historical
and projected earnings and cash flows;
• Identify key vulnerabilities, risks and
opportunities;
• Understanding the company and its
market

9. Purpose of Due Diligence
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4. Setting in motion planning for post-IPO
operations
company’s tax, legal, corporate
• Highlight changes required in the
or
shareholding structures
• Check whether the Company has
complied with all the laws

10. Need for Due Diligence in
IPO’s
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• Going public increases the number of
shareholders.
• Board performance subject to closer scrutiny.
• Institutional investors look for increases in
share prices,achievement of profit targets and
dividend pay-outs.

11. Need for Due Diligence in
IPO’s
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• Investors require assurance of a system of
strategic planning and budgeting,financial
reporting and management information
• The SEBI disclosure requirements are met
through the due diligence process

12. Key Areas of Focus
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• Financial statements – to ensure their accuracy
• Assets - confirm their value, condition existence
and legal title
• Employees – identification and evaluation of the
key movers
• Sales strategy – analyzing the policies and
procedures in place

13. Key Areas of Focus
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• Marketing – what is driving the business and
is it effective?
• Industry in which the company operates –
understand trends and new technologies
• Competition – identify the threats
• Systems – how efficient are they? Are
upgrades required?

14. Key Areas of Focus
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• Legal and corporate and tax issues – is the shareholding
structure robust? Are there any tax issues which need to
be resolved?
• Contracts and leases – identify what the risks and
obligations are;
• Suppliers – are they expected to remain around?
• Intellectual Property - protected and to what extent?

15. Legal Issues
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1. Licenses and Permissions
2. Litigation
3. Real Estate and Moveable Property
4. Company Law
5. Employees, Consultants, Labour Relations
6. Environmental Permissions

16. Gap Analysis
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The due diligence helps identify areas where the
company exhibits weaknesses
Eg: It may highlight
company’s management
deficiencies
structure
in the
or an
inefficient tax structure.
Therefore pre-IPO due diligence process will
result in a gap analysis between the present
status of the company and the company that
should be floated.

17. Filling in the Gaps
 Gaps identified assist the directors in:
 divesting of non-core, non-profitable
activities.
 criticalanalysis of the control,
accounting and reporting systems
 critical appraisal of key personnel.
 identify the value drivers of the
company
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18. Consequences of
Misrepresentation in Offer
Documents
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• Civil liability under S. 62 of the Companies
Act, 1956 for misstatements.
• Liability is in the form of compensation to
any person who has sustained loss or
damage due to such misstatement.

19. Persons liable under S. 62
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• Every director holding office
• Every person named in the offer document
as a director or a proposed director
• Every promoter of the Company
• Every other person who has
authorized the issue of the prospectus

20. Criminal Liability
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• S.63 of the Companies Act, 1956 provides for
punishment in the form of imprisonment and
fine upto Rs. 50, 000/- for any untrue
statement.

21. Persons Liable under S.63
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Any person who has authorized the issue of
the prospectus except:
• An expert who has given his consent to have
his statement recorded in the prospectus
• Auditor, legal advisor, attorney, solicitor,
banker or broker who has given his consent
to include his name in the offer document in
any capacity.

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23. THANK YOU
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24. Universal Legal Advocates
24
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77/79, Maharshi Karve Road,
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