The importance of legal due diligence for companies in Macedonia

In the fast-paced world of business, making informed decisions is one of the key factors for success. One such process that aids in making well-informed decisions is the process of legal due diligence. In this informative blog, we will provide a brief overview of the concept of legal due diligence, the procedure, and the importance of this process.

When is a legal due diligence conducted in a company?

Legal due diligence is not a regular procedure but a strategic necessity. Several situations necessitate the implementation of legal due diligence in the company:

Status changes in the company (M&A) – In the case of status changes, it is of essential importance to evaluate the “legal condition” of the merging or acquiring company. Through this process, potential legal risks and legal challenges that could impact the success of the transaction will be identified.
Investments and Financing – In cases where external financing or loans are sought, potential investors or lenders may request a legal due diligence report to assess the legal aspects of the company they would be investing in.
Compliance with Legal Regulations – With the constant changes in legal regulations, businesses must ensure that they operate within the law. Legal due diligence helps identify and address potential gaps in compliance with relevant laws.
Expansion and Growth – In the case of entering new markets, launching new products, or expanding services to other countries, having knowledge of the local laws and regulations is crucial. Legal due diligence assists in navigating the complex laws in different regions.

The process of conducting a legal due diligence

Conducting a legal due diligence is a process that involves a systematic examination of the legal aspects of the company. This process includes: determining the scope of the legal due diligence based on the specific situation, forming a team that includes legal experts, financial analysts, and other specialists with combined knowledge to conduct a comprehensive analysis. Reviewing all legal documents and assessing their importance, rights, obligations, and compliance with current laws. Conducting interviews with key employees to gather information about ongoing legal activities, potential risks, or known challenges. Identifying potential risks and responsibilities that could impact the financial condition, reputation, or business activities. Categorizing these risks by intensity and priority and developing a plan to resolve or mitigate the identified risks or challenges. This plan may involve negotiating new agreements, resolving disputes, or complying with relevant laws.

Standard checklist for legal due diligence

While the specific checklist for legal due diligence can vary depending on the situation and industry, below are some general guidelines that are typically considered:

a. Legal Structure: Confirming the legal structure of the company, ownership, and management.
b. Contracts: Reviewing all contracts, including agreements with clients, supplier contracts, employment contracts, etc.
c. Intellectual Property: Checking the status of trademarks, patents, and copyrights.
d. Legal Proceedings: Reviewing current and past legal disputes to assess potential financial and reputational risks.
e. Compliance with Laws and Regulations: Checking compliance with industry-specific regulations, environmental laws, labor regulations, data protection, and other applicable regulations.
f. Other Employment Matters: Reviewing employment contracts, internal rules and procedures derived from labor law, and relevant collective agreements, among others.

Lastly, why is legal due diligence important?

Legal due diligence is not just a formality; it’s a proactive approach to protect the interests and reputation of the business. By identifying potential risks, liabilities, and issues, legal due diligence enables making informed decisions. Ultimately, it helps the business grow and thrive in a complex and ever-changing business environment.