DOING DUE DILIGENCE IS IMPORTANT

DOING DUE DILIGENCE IS IMPORTANT

What is due diligence when you are thinking of buying a business?

This is a question that I often ask my law students when teaching Commercial Law. It is quite an ambiguous loosely worded phrase, so at times it envokes puzzlement.

The answer boils down to the process of essentially making sure you are getting bang for buck when it comes to what exactly you are buying.

It relates to managing legal risk in a manner in which a lawyer acting as a partner with the prospective business owner teases out all the live issues that arise from the business transaction and test out its validity.

The issues that form part of due diligence range from practical to financial to legal to advisory in nature.

It is a multidisciplinary process involving bankers, business advisers, accountants and financial planners all working with the lawyer and the buyer.

The sorts of issues that lawyers get involved in with respect to due diligence include;

The business legal structure

How the transaction is structured – sale of shares vs sale of assets

Review of contract documentation

Ownership confirmation

Key Employee consideration and retention

Important contracts in place e.g suppliers and contractors

Intellectual property audits

Licence reviews – e.g statutory licences, liquor licences, industry specific licences

Specific industry related legal issues

Once all of this process is undertaken and all the checks have been undertaken and the Contract has been amended accordingly to reflect such, then the matter can proceed to binding exchange, and a sale is effected.

DOING DUE DILIGENCE IS IMPORTANT

DOING DUE DILIGENCE

The bottom line is that the process of doing due diligence takes time and effort.

Due diligence also needs to be done properly and be properly coordinated.

If you want to know more about the legal issues when buying a business here is an article I wrote that may be of interest to you.

DOING DUE DILIGENCE IS IMPORTANT

Also the The Law Society of NSW has some resources online for those thinking of buying a business.

Call us now about if you have any other questions about buying a business on 9528 0235.

We have offices at Crows Nest on Sydney’s lower North Shore or at Jannali in the Sutherland Shire.

Paul Ippolito is Principal of Ippolito Lawyers. He is an experienced commercial lawyer who works with small business owners, both new and established ones. Paul has also lectured for nearly a decade in commercial and corporate law at The College Of Law in NSW.

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