Member Article

It is basic to determine the legal status of enterprises in the business world. This becomes more important in different sceneries: when acquiring an existing corporation, investing in a going concern, granting loans, merger of companies, in joint ventures, etc. The term "Due Diligence" refers to the process of exhaustive search of the legal status of a specific enterprise. This is a common practice in developed markets, such as The United States of America, Europe and Asia and it is now also practiced in emerging markets such as Latin America. The Term "Legal Auditing" is also used. In the process of Due Diligence, the appointed team of attorneys must perform a detailed analysis of different legal aspects of the company: a) Social : Articles of Incorporations, Bylaws, Minute Book, and Shares Registration, Shares Certificate, Power of Attorneys in force; b) Contractual: Main agreements subscribed by the company or in process of negotiation, mainly those that may have a relevant legal or economic impact; c) Work Relations: review of the Labor Contracts of the enterprise, relation with employee of confidence, Internal Bylaw, Labor liabilities status; d) Fiscal : Tax calculation, Tax Returns, payments of national and municipal taxes; e) Regulatory: Obtaining of permits applicable to the respective industry (Import license, Concessions of Telecommunications, power energy, free trade zones, etc.); f) Environmental: duration of permits for the development of certain industries that are more vulnerable to environmental effects (free trade zones, wood extraction, exploitation of minerals, etc); g) Intellectual Property: Analysis of the trademarks registration and sanitary, if it were the case, of the products that the company commercializes; h) Existing Trials: analysis of possible results and impact of civil, criminal, administrative and labor proceedings, etc. As a result of the aforementioned, the analysis of the legal status of the company is in fact a report that shows all the strengths and weakness of a business. The recommendations included as conclusions of such report, are important to determine whether or not a proposed transactions must be executed, immediately followed by specific amendments to each of the studied areas. In this manner, the management will have a clear view of the type of operation that is performing and, additionally, will have tools for negotiating with the counterpart (for example: In view that you have not paid the taxes, I will be in charge, but you must considerably reduce the sales price of the shares). Finally, it is important to remark that the Due Diligence of the company will not only apply to those cases in which a specific transaction will be executed, but also this legal analysis may be practiced in a enterprise that has not taken the time or care to make this review. The legal opinion that outcomes from the study, may result in considerable savings for the business, by preventing complex legal problems, for example: non-compliance with contracts in force, inadequate payment of work benefits, wrongly tax payment, initiating trials that can be avoided, etc.