Get To Know The Term Due Diligence – Due diligence is mandatory and very important for a prospective buyer in the business world. This is because the buyer or new owner of an asset needs to be responsible for all matters that occur in the business. Legal due diligence is an examination carried out by a legal consultant at a company.
Definition of Due Diligence
Legal due diligence is a thorough inspection activity carried out by a legal consultant on a company or object to obtain material information or facts to find a picture of the condition of a company or object of a transaction. Rio Christiawan in Legal Due Diligence Legal Due Diligence defines a due diligence audit as an activity to assess legal risks that may arise.
The risk referred to is closely related to the transaction to be carried out by the parties. In simple terms, ideally, the integrity due diligence process focuses on identifying risks that are normally not disclosed. This process can help reduce risk, assist in making informed decisions, see more opportunities, and manage situations better.
The due diligence process does not cover law alone. However, it can also involve or include other aspects to be assessed. Some examples of variations include financial, tax, environmental, and customer. For information, what is meant by financial due diligence is the activity of carefully examining the financial condition of a company by an accountant or financial consultant.
Then, tax due diligence is an inspection activity of a company’s tax track record. Then, environmental due diligence is a careful examination or assessment of potential risks to the environment, either potential losses or environmental improvement obligations. Finally, customer due diligence is an examination in the form of identification, verification and monitoring carried out by financial service providers to ensure transactions are by the profiles, characteristics, and transaction patterns of the customers concerned.
Types of Due Diligence
Broadly speaking, there are two types of LDD, namely full due diligence and limited due diligence. As the name implies, full due diligence conducts an audit of all legal aspects of the company, including the articles of association, capital and share structure, the composition of shareholders and directors and commissioners, permits and approvals, company assets, insurance, workers or labor, agreements with other parties. other, until there is a legal case or not. Usually, this type of LDD is carried out by companies that want to go public. In addition, this step is often used by companies that are going to do mergers, acquisitions, and consolidations.
Meanwhile, limited due diligence is an audit carried out individually. So those who will be audited are not companies, but individuals. This type of LDD is usually carried out in matters of loans, licenses, and acquisitions of certain assets or transactions.
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