In order to operate business activities in any business sector, it is required to establish a business establishment, for e.g., sole proprietorship, partnership or a limited liability company. Once the establishment is formed/incorporated certain laws and regulations becomes applicable on the establishment. Furthermore, a separate set of laws also applies to the establishments depending on the type of business and the specific sector where business operations are conducted.
The investors, both local and foreign, of the businesses may have a rough idea about the general compliances which are required to be complied with, but it often appears that they are unaware of the various types of rules and regulations which are applicable to them as they are not well aware of all the applicable laws. Thus, it might result to sudden penalties, imposed by the relevant authorities, on the establishments for not abiding by the laws as ignorance/unawareness of the applicable laws is not a defence.
It is thereby important for the owners/investors/future investors of establishments to ensure that legal due diligences are made at a regular interval in order for them to know the applicable laws and the non-compliances that exists in their establishments which may/will result to penalties.
Legal due diligence is made by law firms, as they are most informed about the laws of the land, in relation to the specific establishment, which provides the list of the laws which are applicable to them and what it requires that specific establishment to comply with. It also provides the list of non-compliances and the procedures to remedy such default. The report identifies the relevant authorities, if any, to whom the establishment is require to report and/submit documents on a regular interval. The law firm, in order to prepare the report requires the establishment to provide them access to its documents and after vetting the related documents of the establishment and/or visiting the establishment. Sometimes a separate Non-Disclosure Agreement (NDA) are signed between the parties (i.e. the law firm and the establishment or the documents providing party) in order to maintain strict confidentiality about the documents and/or the information which shall be received at the time of conducting due diligence, as any leakage of such information may/will cause adverse effect on the business of the establishment.
The legal due diligence report helps the owners/investors/future investors to know about the applicable laws and the non-compliances about an establishment and allows them to take informed business decision which will not have future legal complexities. Multinational companies are often seen to conduct regular legal due diligence to obtain regular update about the current laws and its compliances so that no unnecessary legal complexion arises while conducting the business which could damage their business and/or reputation.