Introduction
Checklist for Company Due Diligence
A company’s due diligence is frequently undertaken prior to a business sale, private equity investment, or bank loan funding, among other things. The financial, legal, and compliance aspects of the organisation are frequently assessed and documented during the due diligence process. In this article, we look at the due diligence procedure for a firm (Private Limited Company or Limited Company) and present a checklist for individuals conducting due diligence in India.
Due Diligence in Business
Prior to the acquirer or investor (“Buyer”) purchasing or investing in a firm, a business due diligence is frequently done. The seller of the business or shares (“Seller”) is responsible for providing the documentation and information necessary for the buyer to perform due diligence on the company. Due diligence assists the buyer in making an informed investment decision and mitigating the risks of a business purchase deal. Prior to beginning a business due diligence, both parties normally sign a non-disclosure agreement because sensitive financial, operational, legal, and regulatory information will be disclosed to the buyer during the due diligence process.
Documents Required for Due Diligence in a Company
Due diligence usually necessitates the following information and documentation relevant to a private limited company or limited firm:
- Articles of Association Memorandum of Association
- a Certificate of Incorporation a Shareholding Pattern
- Financial Statements (Financial Statements)
- Bank Statements Income Tax Returns
- Certificates of Tax Registration and Receipts of Tax Payment
- Statutory Registers are a type of register that is required by law.
- Property Documents are a type of document that is used to describe the ownership of a piece of property.
- Registration or Application Documents for Intellectual Property
- Utility bills, employee records, and operational records are all examples of records.
Examining MCA Documents
The Ministry of Corporate Affairs is in charge of the majority of a company’s due diligence. The master data of a corporation is made publicly available on the Ministry of Corporate Affairs website. Furthermore, all documents submitted with the Registrar of Companies are made available to everyone for a modest price. This data from the MCA website is normally double-checked first.
Company Information
- Date of Incorporation
- Authorised Capital
- Paid-up Capital
- Date of Last Annual General Meeting
- Date of Last Balance Sheet
- Date of Last Annual General Meeting
- Company’s Current Situation
Charges Registered
- Details of Secured Lenders of the Company
- Quantum of Secured Loans
- Director Information
- Directors of the Company
- Date of Appointment of Directors
- Certificate of Incorporation
- Memorandum of Association
- Articles of Association
In addition to the aforementioned, the company’s financial information and other MCA files relevant to various parts of the organisation can be downloaded and studied. The analysis of the company’s MCA documentation would give the individual undertaking due diligence a good overview of the organisation.
Review of the Association’s Articles of Incorporation
During the due diligence process, it is critical to analyse a company’s articles of association to determine the different classes of equity shares and their voting rights. The transfer of a company’s shares may be restricted by the articles of organisation. As a result, the articles of association should be carefully examined to determine the mechanism for transferring shares.
Review of the Company’s Statutory Registers
A private limited company is required to keep numerous statutory registers pertaining to share allotment, share transfer, board meetings, the board of directors, and so on under the Companies Act, 2013. As a result, a company’s statutory registers must be examined in order to gather and authenticate information about directorship and shareholding.
Financial Statements and Book of Accounts Review
The Companies Act of 2013 mandates that all businesses keep a book of accounts with complete transaction details. As a result, precise financial transaction information must be audited and validated against the company’s financial statements. The following are some of the issues to consider throughout the financial due diligence process for a business:
Verification of bank statements, valuation of all assets and liabilities, verification of cash flow information, and verification of all financial statements against transactional data.
Examining Legal Aspects
A legal practitioner must do a full legal audit of the firm to determine if there are any current legal actions, litigation by or against the company, and liabilities in each case. In addition, during the legal due diligence, the following issues must be examined:
Legal due diligence on all of the company’s real estate properties. No objections from Secured Creditors to the company’s transfer. Verification of court documents and court filings, if applicable.
Examining Operational Aspects
During the due diligence process, it is critical to have a complete understanding of the company model, business operations, and operational data. A thorough examination of operational factors, including site inspections and personnel interviews, is required.
Production Information; Vendor Information; Machinery Information; Utilities Business Model Number of Customers Number of Employees Production Information Vendor Information Machinery Information Utilities
Other operational characteristics may be significant in addition to the aforementioned, depending on the firm and business style. During the due diligence process, such aspects must be thoroughly examined and documented.
Conclusion
Financial statements, spreadsheets, textual reports, pie charts, and bar graphs are all possible components of due diligence reports. It’s crucial to provide the facts in a clear and engaging manner, along with graphics that will assist readers to understand the significance of your findings. Furthermore, the data must be exhaustive. Financial reports, for example, should provide background information and in-depth analysis to help parties comprehend the information presented.
While having so many must-have items can make a due diligence report bulky, it’s also crucial to keep it brief so that people are engaged while reading it. Otherwise, they risk overlooking the report’s most important features.
