How Do I Perform A Due Diligence To Buy An Operating Company And/or Business?

The success of a business or investment can never be guaranteed, but potential failure can almost always be foreseen. Corporate due diligence prior to investing or buying a business is important. Due diligence is an analysis of a business, company, group of companies or person that is conducted prior to deciding to close on a transaction. The purpose of corporate and business due diligence is to gather and assess as much information about a company or business, its assets, contingencies, competitors, finances, etc., as possible to make an informed decision on the benefits and risks of the transaction. If you are going to invest in or buy a company or business you should conduct corporate and business due diligence that includes at least the following:

– A review of the corporation’s governing documents, articles of incorporation and bylaws, including amendments, restatements and registration in the Public Registry of Costa Rica.

– A review of the minutes of the board of directors’ meetings and of any existing committees.

– A review of stockholder meeting minutes, stockholder agreements, stock purchase and repurchase agreements, stock restriction agreements, warrants or stock option agreements and options to purchase securities.

– A review of the company’s stock ownership ledger, stock transfer registry and issuances of pledges, encumbrances and liens against the stockholders or stock.

– A review of the company’s subsidiaries, divisions and affiliates and their stockholders.

– A review of the officers’ and directors’ profiles, resumes and related information, as well as the powers granted to them.

– A review of the corporation’s capitalizations, cross-checked against stock ownership, stock certificates and/or provisional certificates representing stock, classes of capital stock authorized and number of shares issued and outstanding.

– A review of the powers of attorney granted by the company, in addition to their delegation or substitution.

– A review of audited and unaudited financial statements, business budgets, projections and balance sheets.

– A review of the value of fixed assets vs. appraisals.

– A review of short-term debt loan agreements, lines of credit, letters of credit, sale/leaseback and guarantees executed by the company.

– A review of long-term debt loan agreements, bonds, debentures, notes, mortgages, security agreements and guarantees executed by the company.

– A review of accounts payable and terms of payment.

– A review of tax returns not covered by the statute of limitations.

– A review of claims asserted or threatened by any tax authority against the company or any other entity for which the company could be liable, whether directly or indirectly.

– A review of the distributions of dividends for past periods.

– A review of owned or leased assets and related liens, structures, lease provisions, use and location.

– A review of any deeds, leases, mortgages, mortgage bonds, sales contracts, surveys, sublease agreements, appraisals of the leased property, default notices and estoppel letters executed by the company.

– A review of property tax bills for the last 3 years.

– A review of trademarks, trade names and fictitious business names owned or used by the company.

– A review of customers, distributor and vendor agreements, employment contracts for management and other staff, deferred compensation, severance agreements and all general employment or collective bargaining agreements with employees.

As you can see due to the scope of the information above, it is essential to have a good legal and accounting team to help you navigate the process of due diligence. As we always say, performing thorough due diligence is an investment and not an expenses. If you want to know more about the business due diligence process or need advise, please contact us.

If you want to know more about the business due diligence process or need advise, please fill out the courtesy e-meeting form at the bottom. We will be glad to assist you!