Due diligence documents include those relating to a company’s assets, operations and liabilities. The review is usually performed prior to a merger or acquisition and is crucial to determine the value of the business. It also aids in understanding the potential risks in the event of a deal by looking over agreements, contracts and any restrictions or encumbrances that apply to assets.

Lawyers will also look at financial find data, like federal and State tax returns, bank accounts, and credit reports, in addition to the physical assets. They also will look at the company’s contracts, employment benefits such as payroll and organizational structure. Legal due diligence can last between 30 and 60 days. For more complex transactions the amount of time can increase significantly.

Attorneys will also examine regulatory issues, including compliance concerns as well as antitrust analysis(opens in new tab). They might also analyze the current legal environment of the company and any litigation that involves the company in question or its officers.

The most important part of an investigation of due diligence in law is determining the possibility of liability for a transaction. Attorneys frequently recommend that you purchase representations and warranties insurance (opens in an entirely new tab) to cover the purchase. This is particularly important in cases where the buyer is not familiar with the company of interest and its background. It is a way to protect the seller from inaccurate claims or assertions made by the buyer. Also, lawyers may look over any documentation pertaining to the policies of the company’s employees including severance packages and golden parachutes(opens in a new tab) which could be affected by a change of ownership.