Legal Due Diligence Procedures for Acquisition: Don’t Buy Pig in a Poke

As nature, Legal Due Diligence (LDD) known as legal audit.  Audit means to data verification, rechecked, or data examination.  In the further, legal audit desires to extend the audit scope, thus, the terms of LDD has been used.  “Due” is in accord with right or appropriate, then “diligence” is persevering determination to perform a task.  In this point, LDD not only aims to cover data verification, but also the critical examination with continually efforts to dig in the important information in the light of conformity data.  The examination itself should be following through. 

Black’s Law Dictionary defines LDD as:

Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case.

In acquisition, LDD have a main role in connection with, first, the decision whether to buy the target company with the in depth examination through the relevant tools on LDD.  After we assure to buy, second, in how much price we reasonably buy it.  In simply, more quality the company belongs, more expensive its price.

Prior to acquisition has been made, we have to consider the existence of the company in the register of Minister of law and Human Rights.  Besides, many related requirements and regulations with the specified company’s business activities necessarily to be complied.  For instance, The Law No. 40/2007 concerning Limited Liability Company and The Law No 8/1995 concerning capital market for public company.

Furthermore, in connection with licenses and permits, we shall be aware that company comprises into green vile company and brown vile company.  Green vile company holds licenses and permits, but has not carried out business activity yet.  Not same with Green vile company, brown vile company provides licenses and permits and its activity has been run.

In targeted company, we shall acknowledge its assets.  Gathering all information from audited financial statement is one of method to examine the assets.  However, we will not only attain the assets, but also the liabilities, such as either liability rose from contract (consensual liability) of liability rose from law (Statutory liability).