15th November 2012
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Lethbridge Lawyer Stephen C. Mogdan Discusses Due Diligence

The term “due diligence” usually applies in commercial purchase transactions, and is therefore something lawyers deal with on a regular basis. When someone is proposing to buy a business – whether by purchasing the assets of the business or the shares of the corporation – due diligence investigations are usually conducted into the target corporation/business.

In general terms, the objective of due diligence investigations is to ensure that the proposed purchase transaction can be completed in the way the parties intend. The process will uncover information regarding the value of the business or assets; risks involved with the purchase; and the identity and other particulars about the business/assets being acquired. As such, due diligence is critical to your commercial purchase.

Due diligence investigations are conducted in most cases by the Purchaser and professional advisors the Purchaser may hire (lawyers, accountants and, depending on the nature of the transaction, industry consultants or other experts). In many cases, the Purchaser is already familiar with the industry and may not need industry experts or consultants give due diligence advice. Usually, legal and accounting advice play the largest role in due diligence investigations simply because of the nature of the transaction and the purpose of due diligence.

It is important to note that due diligence investigations will consist of different activities depending on the nature of the purchase transaction. They usually involve (at a minimum) reviewing the available books and records concerning the transaction, particularly the minute book of the selling corporation (or, if the transaction is the purchase of shares, the target corporation), leases , title documents and other material agreements and contracts. Effective due diligence will also involve searches in available public registries, such as Corporate Registry, the Personal Property Registry, Courthouse searches and Bankruptcy searches.

At the end of the day, effective due diligence investigations will be governed by the nature of the purchase transaction involved. Regardless of the exact parameters, it is important to ensure that your legal advisor is aware of the prospective transaction at an early date so that effective due diligence can be completed early and the results reported to the Purchaser and available to be used in negotiating the terms of the purchase transaction.

Stephen Mogdan regularly deals with due diligence investigations in commercial transactions, and would be happy to advise you. Email Stephen at scmogdan@stringam.ca, or call 403-328- 5577 for more information on this or any other business law topic.

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Written by Stephen Mogdan