legal due diligence: an investors perspective

7/30/2019 LEGAL DUE DILIGENCE: AN INVESTORS PERSPECTIVE

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LEGAL DUE DILIGENCEAn Investor Perspective


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What Is Legal Due Diligence

Due diligence is the level of judgment, care, prudence, determination, and activitythat a person would reasonably be expected to do under particular circumstances.

Due diligence assesses the risks and opportunities of a proposed transaction. it

helps to reduce the risk of post-transaction unpleasant surprises. It also increasesthe possibility of achieving investment objectives.


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Strengthening the Foundation

Growth

Stability

DueDiligence


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Acquirer/ Joint Venture Partner/Investor

Investor is the one who proposes to take some stake in anexisting Company.

Acquirer is the one who proposes to purchase majority ofshares of an existing Company.

Joint Venture Partner is the one who joins hands to dobusiness with other partner.


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Why Legal Due Diligence

An acquirer/JV Partner would want to

undertake legal DD to assess

Risks Opportunities


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Why Legal Due Diligence

History of Company

Reduces risk of Investment

Estimation of current and futureliabilities

Estimation of compliance level ofCompany

Outstanding litigation againstthe company

Informed decision about

Investment


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Role of Law Firm in Legal Due Diligence

Assess the risk factors and investment

Interaction with management and auditor of Company

To understand the operation of Company

To understand the decision making hierarchy in Company

Visit at Plant site

To understand the compliance practice in company


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Company History & Background

Capital Structure & Evolution

Management & Key Managerial Personnel

Identification of laws applicable to Company

Corporate Compliance Management

Material Contracts & Agreements


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Outstanding Litigations

Assets and Immovable Property

Registration and Licens

Insurance & Risk Management

Human Resource

IPR

Others as per company


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Companys History and Background

Age ofcompany

Change inthe name

and addressof company

Basics ofcompany

CorporateOffice and

Plantlocation

Others


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Capital Structure and Evolution

Authorized Share Capital

Issued/Subscribed/Paid-up Capital

History of Capital Evolution

Convertible or redeemable instruments


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Management and Key Managerial

Personnel

Details about Board of Directors

Profile of Board of Directors

Key employees like CEO/CFO of Company

Organization Structure of Company


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Identification of laws applicable to

company

Understand the business of Company

Understand the location of business

Prepare a list of laws applicable to company


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Corporate Compliance Management

CorporateCompliance

Management

Central lawsIndustry

specific laws State laws


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Central Laws

Company Laws and Rulesand Regulations

Companies Act, 1956

Other Rules and Regulations

Securities Laws

SEBI Act, 1992

Securities Contracts(Regulation) Act, 1956

The Depositories Act,1996:

SEBI(SAST) Regulations,2011

Environment Laws

Air (Prevention and Control

of Pollution) Act,1981

The Environment(Protection) Act ,1986

The Water (Prevention andControl of Pollution)

Act,1974

TheForest(Conservation)Act,19

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Central Laws

Taxation Laws

Central Excises Act,1944

Central Excise Tariff Act, 1985

Central Sales Tax Act,1956

Industrial Laws

Factories Act

Payment of Bonus Act

Contract Labor Act

EPF

ESI

Gratuity Act

Child Labour (Prohibition &Regulation) Act, 1986

Others

Arbitration and Conciliation Act

FEMA

Prevention of MoneyLaundering Act, 2002


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Central Laws

Corporate Laws

Existing

Board ofDirectors

Shareholders

of Company

Power to

take decision

Maximuminvestment/lo

an to begiven

Minutes/Stat

utoryRegisters


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Industry Specific Laws

Drugs and Cosmetics Act

Central Motor Vehicle Rules

The Batteries(Management and Handling) Rules,2001

Petroleum and Natural gas Act

Boilers Act

Mines and Minerals Act

Electricity Act


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State Laws

Himachal Pradesh Motor Vehicles Taxation Act,1972

Stamp Duty Act

The Madhya Pradesh Sale of Khaddar Act, 1953

The Uttar Pradesh State Commission for WomenAct, 1997


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Material Contracts and Agreements

All Exclusive Supplier Agreement

All Exclusive Customer Agreement

All Exclusive Sole Selling Agreements

All major and material Contract with Government

Lease Agreement

All other major and material contract with any party affecting thebusiness


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Outstanding Litigations

Cases filed by Company

Cases filed against Company

Legal Notice received

Legal Notice issued

Cases filed against promoters


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Assets and Immovable Property

Immovable Property- Original Title deeds

Lease deed/Rent Agreements

Motor Vehicles RC

Plant and Machinery warranty invoices

Other assets based upon Industry


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Registration and License

Certificate of Incorporation

Direct Tax Registration

Indirect Tax Registration

Employer Based Registration

Industry Based License

IEC Code

Environment Law

Industry License

Permission to carry on business by any statutory authority- TelecomLicense, Real Estate Development, Insurance Stock Broker, NBFC


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Insurance and Risk Management

All insurance policies

Check whether assets are appropriately insured

Status of claims filed by Company against insurance Company

Identification of risk areas


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Human Resource

Employer on payroll Contract laboremployed

Key Managerial

Personnel ofCompany

Plant and location

wise employee ofcompany


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Intellectual Property Rights

RegisteredTrademark

Copyrights PatentPending

IPRs


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Online Search about Company

Verify the following websites to know more about Company and defaults

www.sebi.gov.in

www.mca.gov.in

www.watchoutinvestor.com

www.crisil.com

www.rbi.org.in

www.nseindia.com

www.bseindia.com

www.google.com www.corporatelens.com*

* Launching soon


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Materiality or Non- Materiality

Any information which may affect the decision of investorfor investment is said to be material.

Initial Discussion with investor about materiality of diligence

Defining the scope of diligence based upon discussion with

investor

Inform to Target Company about materiality of diligence


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Financial Liability

Investor wishes to be informed about financial liability in each part of

diligence

Estimation of penalty clause of relevant law Estimation of liability, which may impose on Company, if arises

Financial Liabilityunder each Head

Fixed Contingent


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Role of Due Diligence

Although due diligence focuses on negative

information, the aim is not to raise obstacles to

transactions, but rather to facilitate transactions by

identifying problems and risks and by devising

solutions to problems or mechanisms to reduce or

manage the risks involved in acquisitions.


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Thank You!Arun Gupta

PartnerCorporate ProfessionalsAdvisers and Advocates

D-38, South Ex-Part-1, New Delhi - 110 049, India, (B): 09810275571, +91 11 40622214

Our Gamut of Services

Corporate Restructuring | Securities Laws & Capital Market Advisory |Corporate Law Advisory & Due Diligence | Global Business Structuring |Corporate Taxation | Forex & Overseas Transactions | India Entry Services|

Deals & Commercial Agreements | Intellectual Property Rights

www.cpadvocates.in
http://www.cpadvocates.in/http://www.cpadvocates.in/

legal due diligence: an investors perspective

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