Learn about the 3 phases of legal due diligence for global corporate transactions
ComplianceApril 14, 2020

The 3 phases of legal due diligence for global corporate transactions

Operating globally has far-reaching implications for any company. Whether the company is undertaking a merger, acquisition, carving out or spinning off a business, its legal counsel will need to perform due diligence work to reveal potential legal liabilities.

However, international due diligence introduces new complexities for law firms, legal counsels, and their teams. Attorneys for companies that transact business internationally need to be cognizant of different jurisdictional requirements, laws and regulations that require special consideration when pursuing a transaction. Failing to conduct timely and sufficient due diligence can also result in enforcement actions by local government authorities.

In this article, we’ll explore the three stages of conducting an international legal due diligence and key actions that legal teams must undertake for their clients’ global transactions.

Phase 1: Preparation

The first phase in a due diligence process is preparation. During this time, it’s important for legal teams to understand what their clients are seeking to accomplish with the transaction. Depending on the deal, attorneys must assess what their clients’ end goals for the transaction are. Based on these conversations, attorneys define what information is most important to obtain, and set priorities for the following phase of the process considering timelines and budgets.

When it is an international transaction, the right resources need to be put in place to perform the due diligence in the required jurisdiction. This can be challenging for most legal teams due to limited time and resources. Leaning on an expert provider that has the know-how and boots on the ground internationally ensures that investigations are conducted efficiently and in a timely manner.

Legal Due Diligence for Global Corporate Transactions
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Phase 2: Investigation

Next, is the investigation phase, which is the most time-consuming for legal teams and involves a significant amount of document collection. These documents may differ according to the type of information counsels are seeking to understand and form a legal opinion on – making each document search a unique process.

Legal teams also need to be aware of different jurisdictional requirements. Differences in local laws and regulations, informational requirements, and document nomenclature, requires local knowledge and special consideration during this phase.

For example, document naming conventions may not equal what they are commonly referred to in the U.S. and can vary from country to country. Additionally, local timelines and translation requirements can result in extended turnaround times and added complexity. Read more about the challenges and complexities of international document retrieval.

Below is a list of common documents searched during an international due diligence investigation:

  • Organizational
    • Certificate of incorporation
    • Company by-laws
    • Limited liability agreement
    • Stockholder agreement
    • Health Check and Credit Reports
    • Certificates of Good Standing
    • Directors list
  • Contracts
    • Customer contracts
    • Supply contracts
    • Operating contracts
    • Licenses
  • Financial
    • Annual reports
    • Financial statements
  • Litigation
    • Lien searches
    • Pending litigation
    • Judgments
Three Phases of Legal Due Diligence for Global Corporate Transactions
3 Phases of Legal Due Diligence for Global Corporate Transactions
There are many intricacies involved in conducting an international legal due diligence for corporate transactions.  Each phase presents legal counsels with key considerations.

Phase 3: Presentation of results

The final phase in the process, requires legal counsels to review all documentation collected and analyze their accuracy. Oftentimes, legal teams find that additional information may be needed in order to paint a full picture for their clients, therefore supplemental document searches may be required. Once all relevant documents are obtained, legal counsels will present their findings to their clients and provide recommendations on whether the deal is beneficial to their business.

Depending on the size of the investigation and set preferences, these findings or recommendations can be presented verbally (more common in small deals) or as a memorandum.

Summary

Because of the intricacies involved in conducting an international legal due diligence for corporate transactions, the time required to complete the process can differ depending on the nature of the investigation, the size of the company, and the jurisdictions involved.

The process can also be fraught with unexpected challenges that may impact the deal timeline and strain limited legal resources who may be unfamiliar with the local jurisdiction and its requirements.

Working with a single, trusted global partner and leveraging their know-how, local expertise and boots on the ground is key to navigating the complexities in each country and avoiding the pitfalls of performing an international due diligence investigation.

To learn more about how CT’s global transactional services can help you better support the completion of your client’s global deals and help address their legal compliance needs around the world, contact a CT representative at 844-878-1800 (toll-free U.S.).

The CT Corporation staff is comprised of experts offering global, regional, and local expertise on registered agent, incorporation, and legal entity compliance.

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