Due Diligence and Checklist of a Company By CS Tanuj Saxena

Checklist of Due Diligence for a Company:-

Due Diligence of a Company is performed usually before any business sale, private equity investment.

It is process of research and analysis that is initiated before an investment, acquisition, business partnership, joint venture or bank loan, in order to determine the value of the subject of the due diligence and to see whether there are any major issues involved. Due Diligence Report is summarized report of such findings.

These are the Various Transactions covered for Due Diligence:-

  • Partnerships:- Due diligence for strategic partnerships, strategic alliances or such other partnerships.
  • Mergers and Acquisitions:- Due diligence in case of Mergers and Acquisition is done from the viewpoint of both buyer and seller to look into the financials, legal litigation, patents and other relevant information.
  • Public Offers:- Due Diligence required for various aspects like disclosures in a prospectus, post issue compliance and other matters.
  • Joint Ventures and Collaborations:- When two companies joint together for a new venture, reputation of the company involved is a matter of concern. Due Diligence cover such different aspects involved.

Different types of Due Diligence:-

Business Due Diligence

Legal Due Diligence

Financial Due Diligence

It involves looking into the parties involved in the transaction, prospects of business and the quality of investment.

It focuses on the legal aspects of a transaction, legal pitfalls and other law related issues.

It covers review of accounting policies, audit practices, tax compliance and internal controls

These are the various Documents required during Due Diligence of a Company:-

√ Memorandum of Association.

√ Articles of Association.

√ Shareholding pattern.

√ Certificate of Incorporation of the Company.

√ Financial statements including Balance Sheet , Profit and Loss Accounts, Income and expense statement.

√ Bank Statements.

√ Income Tax Returns.

√ Details and Information of the Directors and management of the Company.

√ Statutory Registers.

√ Utility Bills.

√ Employee records.

√ Intellectual Property Registration and other application Documents.

√ Tax Registration Certificates.

√ Property Documents.

√ Operational, Legal, other Financial Documents.

√ and Others

Master Data of a company and other required data of a company are publicly available on a payment of a small fee on MCA. For a better and adequate Due Diligence practice documents and information can be gathered from the MCA.

Such Information includes:-

Company Information

  • Incorporation Certificate

  • Authorised Capital

  • Paid up Capital

  • Status of Company

Directors Information:

  • Details of Directors

  • Date of Appointment of Directors

Charges Registered:

  • Quantum of Secured Loans

  • Details of Secured lenders of the Company.

  • Articles of Association and Memorandum of Association:

AOA and MOA are important documents of a company and they should be review thoroughly during the due diligence process.

  • Statutory Registers of the Company:

Under Companies Act,2013 a private Limited company is required to maintain various statutory registers pertaining to share allotment , share transfer , board meetings , directors , shareholders etc. such registers must be reviewed to obtain and validate information pertaining to the company matters.

  • Financial Statements and Book of Accounts:

Companies maintain book of accounts along with detailed transaction information as required under the Provisions of Companies Act 2013. These are audited by the auditor of the Company. These should be reviewed and verified properly in the process of due diligence.

√ Verifying the cash flow statements.

√ Verification and Valuation of Assets and Liabilities

√ Verifications of all financial statements against the transactional information.

√ Verification of Bank Statements.

√ Verification of various lenders and loans agreement of company.

  • Taxation Aspects:

To check that there is no unforeseen tax liabilities or any default.

√ Income tax returns.

√ ESI/PF Returns and payments.

√ TDS Returns and Payments

√ TDS Calculations.

√ And Others

  • Operational Aspects:

Understanding the Business Models, Business operations, prospects, employees, customers, Production, sale information, machinery and vendors information.

  • Legal Aspects:

√ To check the legal due diligence for all properties of the company.

√ No objections from secured creditors of the company.

√ Verification of all court documents and court fillings, if any.

The Due Diligence report should provide the desired level of information about the potential investment and the inherent risks involved and the Due Diligence report should provide the required information to the satisfactory.

Each and every aspects apart from the above mentioned must be thoroughly checked and documented during the due diligence process.

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