Legal due diligence is more than just kicking the tires of an automobile. It is a thorough investigation that uses lawyers and CPAs to verify documents and the facts. It requires the review of a broad range of subject matter, including an analysis of legality of contracts as well as litigation liabilities, intellectual property, regulatory compliance and corporate records and financial reviews of financial statements and accounting policies and tax returns. It also involves an operational review of the company’s management organization structure, organizational structure, products, services, sales, marketing facilities and equipment, supply chain, customer relations as well as distribution and sales channels, and competition.

Based on the size of the deal as well as the how complex the company is as well as the complexity of the business, the legal due diligence process can be extremely demanding, particularly for large public companies which have virtual piles of information that lawyers must sort through. Many legal departments are now making use of technology to streamline the process. For example, a document review platform coupled with AI tools.

Before you begin the legal due diligence process, create a framework and goal for the investigation. It is beneficial to create a list of key areas to cover and to have the legal team work out an action plan with the business owners. It is also important to prioritize which areas require specialist input from the firm. For instance, a legal due diligence review of an IP holding company may include inquiries from an intellectual property specialist to determine if the company is in possession of any significant patents or other intellectual property rights and whether there are any infringement cases in the process or being considered.

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