The Importance of Legal Due Diligence in Purchasing a Business in Indonesia

Due diligence is frequently carried out at the time of buying a business. Not just a general investigation, but also including many specific aspects that may differ in degree use as a point from the situation. The action itself is accomplished to protect both parties, but for the most part; the potential buyers. The process itself aims at exposing the-capacity-to-develop of liabilities and financial materials--to establish that there is nothing is out of sight.

The main target of legal due diligence is to derive an idea of information about the critical sections of the business. Through the process, legal due diligence makes an adequate preparation for the potential buyers that are affected by an extended amount of certainty concerning the future business' performances and prospects.

In Indonesia, legal due diligence is more than important in the context of buying a business. This official law-engagement ensures that the system of rules permits every relevant object and material involved. The process can be occupied by involving the experts (lawyers, accountants, or others) in the act of inquiry or systematic study of every piece of information that relates to both parties' necessities.

The Purpose of Legal Due Diligence
Legal due diligence is an action of preventing risks happening. In buying a business, risks still subsist under the adverse conditions. To protect the buyers, the agreement must contain deals which include warranties and indemnities from the vendors. 

To avoid the disadvantages of the transaction, the buyers must obtain as much information as possible using a legal due diligence process. Every step taken to achieve a particular end, which is an agreement, both parties have to make sure they provide themselves all related necessities.

Legal Due Diligence is Important because of These Subjects
1. The company’s general information; facts provided about the company's history, the short-term and long-term goals, visions and missions, or any necessary objective that may be relevant to the buyers' necessities.

2. The financial report to show how healthy the company in economic circumstances. The report that reviewed with a formal assessment includes balance sheets, income statements, projected financial statements, insurances, taxes, and any other of fund statements with the possibility or intention of instituting change if necessary.

3. On the condition that the company has products to sell, they must list the catalog and any information about the products. The document can be fulfilled with brochures, price listings, copyrights, trademarks, licenses, or any official record that found closely appropriate with buyers’ indispensable items.

4. Marketing and competition information can show the buyers about the company's prospects. The documents can be contained in the marketing plans, market analysis, purchase agreements, advertising actions, and the possible (future) competition analysis.

The additional subjects include employment issues, customers’ lists, or the company’s operations, are also needed to be included in the documents. In intending to purchase a business, the buyers should ensure that the legal due diligence is taking a part of the whole process. In an ideal situation, both parties (vendor and buyer) take this action as early as possible to coordinate a clear approach. 

Reference: Smart Consulting