Due Diligence Report
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Due Diligence Report
Due Diligence is a process of analyzing, evaluating and documenting the the legal, financial and the compliance aspects of the company for investment purpose like equity investments, sales, funding and bank loan etc. Due diligence allows parties to examine all the facts and figures of the respective deal before anything legally on papers can be signed by the respective parties.
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Steps in the Due diligence evaluation:
Evaluation of MCA Documents:
Generally, a company’s due diligence starts with the documents available on MCA (Ministry of Corporate Affairs). The master data of a company is available publically for free with a few bucks chargeable for information available with ROC. The information available on MCA is genuine and authentic to rely on. This information is downloadable.
Evaluation of Articles of Association
Evaluation of the articles of association of a company is crucial to identify the different classes of equity shares and the voting rights. As AOA consists of an information regarding the upper limit of transfer of shares.
Evaluation of Taxation outlook
- To check if the company has any unprojected tax liabilities or not, the evaluation is a must. The following taxation related outlook of a company must be checked:
- The income tax return filed/ Payment/ Liability
- The income tax paid/ liability
- ESI & PF – Payments/ returns filed/ calculations
- TDS returns/Payments/calculations
- The GST- Payments and returns filed
- Service tax- Payments and returns filed
- VAT- Payment/ calculation/ return filed
Evaluation of Book of Accounts
As specified mandatory under the companies act 2013, the accounting has to be done and annual returns shall be files properly. Thus detailed information of all the financial transactions that are audited and verified against the financial statements must be presented by the company. Evaluation of the accounting and financial statements in due diligence process incorporates various information:
- Authenticate the bank statements
- Authenticate and evaluate of all the assets and the liabilities
- Authenticate the cash flow information
- Authenticate all the financial statements against transnational information
Evaluation of Operational outlook
When calculating the due diligence, a through review of the business model, operational processes and relating information is very crucial. Following aspects should be documented and verified:
- Business Model
- Number of Customers
- Number of Employees
- Production Information
- Vendor Information
- Machinery Information
- Utilities
- Business Site
- Employee Reviews/ feedback
Evaluation of statutory registers of the company
A private limited company is required to maintain various statutory registers containing information of Members of the company, Director Register, share allotment, transfer, charge Register, Fix assets register, etc. So, in order to judge the information regarding the shareholding, shareholding rights the assessment of the statutory registers is very necessary.
Evaluation of Legal outlook
The evaluation of all the legal aspects is a must to verify if there are any legal actions pending in favor or against the company. So, the following dimensions must be checked for a comprehensive legal due diligence process:
- All the real estate properties associated to the company
- Verification of court documents & filings of the company
- No objection from Secured Creditor relating to the transfer of company.
Documents Required for Due Diligence
- Documents of the company (Charter documents)
- Statutory Registers
- Financial Statements
- Notices from departments
- Attendance Sheets
- Board Meeting Minutes
- Property Documents
- Intellectual Property Registration or Application
- Documents
- Utility Bills
- Income Tax Returns
- Bank Statements
- Tax Registration Certificates
- Tax Payment Receipts
- Operational Records
- Memorandum of Association
- Articles of Association
- Certificate of Incorporation
- Employee Records
- Shareholding Pattern
- Legal Agreements
- RBI Related documents
- Notices, Attendance Sheets & General Meeting Minutes
