A business due diligence is required when an investor is willing to invest in a company or in some cases it is done prior to the purchase of a company.
The main objective of conducting a business due diligence is to assess the overall health of the business that is to be purchased or invested in.
Process of Due diligence:
Step 1: Terms of engagement
Terms for due diligence are decided between the parties and a non- disclosure agreement is signed.
Step 2: Operational due diligence
The operational data and information of the business is gathered, measured and documented.
Step 3: Financial due diligence
The financial data and information of the business is gathered, validated and documented.
Step 4: Legal due diligence
The legal and regulatory data and information of the business is gathered, validated and documented.
Step 5: Reporting of information
The results of the business due diligence process are shared with both the parties.
Documents which are required during the due diligence process:
- Memorandum of Association
- Articles of Association
- Certificate of incorporation
- Shareholding pattern
- Financial statements
- Income tax returns
- Bank statements
- Tax Registration certificates
- Tax payment receipts
- Statutory registers
- Property documents
- Intellectual property registration or application documents
- Utility bills
- Employee records
- Operational records
MCA documents which are reviewed during the business due diligence process:
Company Information
- Date of incorporation
- Authorized capital
- Paid up capital
- Date of last AGM
- Date of last Balance-sheet
- Status of the company
Director information
- Directors of the company
- Date of appointment of the directors
Charges Registered
- Details of the secured lenders of the company
- Amount of secured loans
Documents
- Memorandum of Association
- Articles of Association
- Certificate of incorporation