PRACTICE DETAILS
- Lawyer Mr. Shaman Jain
- Skills Due Diligence
- CATEGORY Due Diligence, Property Management
ABOUT THIS PRACTICE
It’s the investors who are primarily involved in Due diligence, since they are the ones who need to constantly examine the regulatory and process compliance by the company . Prior to any event of private equity investment, business sale, bank loan funding etc the Due diligence of a company is usually completed.
This process generally involves the analysis and registration of a company’s legal, financial and the compliance aspects . Before a legal contract is signed by both parties, inspection of all the material facts or contract is done through this process . Due diligence is not only restricted to buyers, and even sellers can conduct a due diligence on the buyer. Due diligence is a blend of factual, background, legal and accounting checks. Hence , this process saves any kind of shocks after the deal is completed.
Documents Required
- Charter documents of the company
- Notices, Attendance Sheets & Board Meeting Minutes
- Notices, Attendance Sheets & General Meeting Minutes
- Statutory Registers
- Legal Agreements executed by the Company
- RBI Related documents
Assessments
Ministry of Corporate Affairs mark the beginning for a due diligence process of a company . The Ministry of Corporate Affairs provides master data about a company to the public through their website. A minimal fee is required to make the documents filed with the registrar of companies accessible . But first one needs to confirm this information available on MCA website. Following are information and documents collected in this step:
Company Information
- The date of Incorporation
- Authorised capital
- The paid up capital
- The date of the last annual general meeting
- The date of the last balance sheet
- Status of the company
Director Information
- The directors of the company
- The date of appointment of directors
Charges Registered
- The details of secured lenders of the company
- The quantum of secured loans
Documents
- The certificate of incorporation
- The memorandum of association
- Articles of association
It is very easy to download and review entire financial information and all other filings of the company which are available with the MCA. Any person conducting the due diligence can conveniently get a better outline of the company using the reviewed MCA documents.
The due diligence process requires thorough review of the article of association of a company as it helps in establishing the different classes of equity shares and their voting rights. Also, An article of association of a company can put restriction on the transfer of shares of a company. Thus, it becomes crucial to study the article of association judiciously as this assists in determining the procedure for transfer of shares.
Maintaining statutory registers relating to transfer of share, allotment of share, board meetings, board of directors etc is a mandatory process under Companies Act, 2013. Thus, one can gather all the information regarding directorship and shareholders simply by reviewing these statutory registers.
As per the Companies Act, 2013, companies need to have a detailed information regarding all the transactions incurred and maintain a book of accounts for the same. Audit and verification of these detailed financial transaction information must be conducted such that it can be cross checked with the financial statements prepared by the company. Following are few of the matters applicable during the business financial due diligence process :
- Verification of the bank statements
- Verification and valuation of all the assets and the liabilities
- Verification of the cash flow information
- Verification of all the financial statements against transnational information
Rigorous examination of taxation aspect of a company during the due diligence process ensures non-existence of any kind of unanticipated tax liabilities imposed on the company in the near future. Following are the aspects connected to the taxation aspect of a company that are required to be checked :
- The income tax return filed
- The income tax paid
- The calculation of the income tax liability by the company
- ESI / PF returns filed
- ESI / PF payments
- ESI / PF payment calculation
- The GST/service tax / VAT returns filed
- The GST/service tax / VAT payments
- Basis for the GST/service tax / VAT payment calculation
- TDS returns
- TDS payments
- TDS calculations
For identification of any kind of pending legal actions, suits by or against the company and liability in each a thorough legal audit of the company has to be conducted by a legal professional. Following are the characters that need to be investigated during the legal due diligence:
- Legal due diligence for all the real estate properties of the company.
- No objection from a secured creditor for the transfer of company.
- Verification of the court documents and the court filings, if any
In the course of this process it becomes crucial to obtain an in-depth understanding of the business operations, business model and operational information. Site visits and employee interviews must be included in the evaluation of the operational aspects. Following are the aspects that must be covered and recorded in the operational aspects review:
- Business model
- Number of employees
- Number of customers
- Production information
- Vendor information
- Machinery information
- Utilities
