• Merger
• Acquisition
• Funding a startup
• Privatization
• Asset tracking
• Investigation
• The signing of any major contract

Due diligence process typically consists reviewing the mandatory due diligence checklist points of the following key areas-

1. Non-Disclosure Agreement (NDA)- The very first step is to draw a Non disclosure agreement between the concerned parties and that agreement must contain pre decided terms and conditions of the business due diligence.

2. Operational due diligence- In this step the due diligence advisory will collect and study the information and documents related to operational data about the business.

3. Financial due diligence- due diligence company will review and see the documents on topics related to the target company’s last three years financial statements, whether the statements are audited or not, whether the margins are growing or decreasing, what are the company’s future projection, and whether the projections are reasonable or not, what kind of working capital is required to continue the operation of the company, what expenditures and investments are required to grow the business, what is the debt position, the ageing account receivables position etc.

4. Legal due diligence- in this step all the documents of the target company are reviewed. The purpose is to check for all the legal risks associated. Documents related to registrations, compliances, intellectual property rights, litigations etc are evaluated in detail.

5. Preparing reports- the last step involves preparing the reports or putting together the result of the business due diligence process.

The checklist consist of financial checklist, legal due diligence checklist, operational list, HR checklist etc. the various financial, legal and other types of documents that are reviewed and evaluated by the due diligence advisory includes-

• The certificate of incorporation
• The Memorandum of Association
• The Articles of Association
• Financial Statements
• Income Tax returns
• Bank statements
• Tax Registration Certificates
• Shareholding structure
• Statutory receipts
• Property documents
• Intellectual property certification or application
• Utility bills like electricity bills, water bills.
• Environmental audits, license and permits.
• The organization chart and biographical information
• Labor disputes if any
• Employment and loan agreement
• Employee benefit document
• Employment manual and policies
• Operational records related to the list of company’s suppliers. Monthly manufacturing capacities and yield, the backlog of production, inventory reports etc.

The above mentioned checklist actually need to start with the checking of records at Ministry of corporate affairs. In Fact a ROC charge a nominal fee for making an inspection of available information related to another organization.

It is also important to check for the tax related documents other than checking the financial statements, cash flow information and valuation of assets and liabilities of the company.

Checklist of due diligence is done to save time and money and to save a business from impending financial disaster and irrevocable embarrassment to the reputation of the acquiring company.

Yes it is as it involves standard procedure and it overlaps with an inspection in purpose and method.

To carry out the detailed investigation of the target company the potential buyer to correctly assess the relevant financials of the company so that the chances of acquiring unknown risk and unexpected liabilities are minimized.

It is extremely important in case of Mergers and Acquisitions as well as in privatization of companies.

Any person who has the knowledge of law can perform due diligence.