These days of recession mark the end for certain businesses, but for others, especially those that have accumulated cash in recent years and still enjoy today a positive cash flow, these are days of seeking out and identifying business opportunities, whether in the field of activity and occupation of an existing business or tangent to it, or in a completely different field.<\/p>\n
However, before making a decision on the purchase of a company or business activity at a \u201cbargain price\u201d it is important to perform what is called in the professional jargon \u201cDue Diligence\u201d, which aims to examine all legal aspects relating to the acquired company and its business activity, that may or could influence the buyer and therefore discovering them in advance rather than after the fact is of great importance.<\/p>\n
Among other things, the issues it is important to examine in a timely manner are:<\/p>\n
Examining the company (put up for sale) and its relationship with its shareholders<\/b> \u2013 who are the shareholders? What are the agreements between them? Are there any obligations on the part of the company to the shareholders or between the shareholders that should be known in advance?<\/p>\n
Examining the business activity (put up for sale)<\/b> \u2013 who are the company\u2019s significant customers? Is there a written agreement with them? Is there information that any of them may terminate its activity with the company? Who are the company’s main suppliers? Is the company dependent on any of them?<\/p>\n
Examining the company’s assets (put up for sale)<\/b> \u2013 has the consideration for the assets been paid in full? Are the assets pledged? Are they properly registered in the company\u2019s name? Does any third party have any claims with respect to assets belonging to the company? Does the company have intellectual property (such as a patent, trademark, etc.)? Are its rights registered properly?<\/p>\n
The company’s obligations to employees<\/b> \u2013 who are the employees engaged by the company? Has the company signed employment agreements with these employees? For how long have they been employed by the company and under what conditions? Has the company made all necessary social provisions in respect of these employees?<\/p>\n
The company’s obligations to third parties<\/b> \u2013 does the company owe money to the bank? To any suppliers? To any third parties? Has the company provided any letters of guarantee\/ promissory notes\/ security checks, etc. in respect of its obligations to a third party? What insurance policies does the company hold and have all of the premiums been paid in their respect? What is the state of the company\u2019s tax assessments? Does it owe money to any of the tax authorities?<\/p>\n
Legal proceedings conducted by the company<\/b> \u2013 is the company involved in any claims (as a plaintiff or defendant) and what is their status? Does the company know of any legal proceedings that may be initiated against it due to a past or present event? Does the company hold all of the licenses required? Is the company involved in any proceedings with the authorities on matters of licensing or permits?<\/p>\n
Of course the examination varies from case to case, depending on the field of engagement and business activity of the company for sale and the legal and business structure of its operations. In this respect, it is important to perform this examination using a skilled lawyer proficient in the commercial field, who will know what documents to ask for and how to perform the examination in a thorough and comprehensive manner.<\/p>\n
The specific structure of the transaction (should you buy shares or alternatively purchase only the business activity) is also affected by tax considerations and other legal aspects, and before making a decision in the matter you should consult with an attorney specializing in the field and with an accountant.<\/p>\n
In this respect it should also be noted that even if ultimately it is decided to purchase the business activity only (as opposed to the acquisition of the company), one should conduct most of the examinations listed above, as the findings have significance to possible future claims of third parties regarding the buyer of the activity.<\/p>\n