A “Due diligence” is an investigation of a business or of a person prior to signing a contract. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence is the process through which a potential buyer evaluates a target company or its assets for acquisition. Due diligence can be legal or financial.
Should you do a due diligence when buying a business in Thailand. Yes, especially if you are purchasing an existing company as is. Because when you purchase an existing company then any liabilities attached to the existing company (if any) will be yours. If you only purchase the business without taking over the company that was running the business then the due diligence of the target company is not as absolutely necessary but should still be done to check the realty of the assets of the company or its turnover.
Now the problem with a due diligence is that it is something which takes times and efforts and as a result it is quite costly too accomplish (at least 350,000 THB for a legal and accounting due diligence) which is why many people renounce to do due diligence before to proceed to the acquisition of a small business. I mean if you purchase a 5,000,000 THB business the cost of the due diligence is 8% of the purchase price. Therefore you may hesitate to do it. But what if the due diligence had disclosed potential liabilities of a 1,000,000 THB which liability you may then use to reduce the purchase price?
Yes it may be costly to do a due diligence when aquiring a small business but it may save you a lot of money. The worth case that may happened is that the results of the due diligence shows finding that are so bad that you dont want to buy the business anymore. You will find yourself out of 350,000 THB and dont buy the business anymore. It is indeed a bad situation. But worth could have happened to you. You could have bought the business and lost all your investment.
The scope of a legal, tax and accounting due diligence will cover 10 areas relating to the Target Company
(a) Section 1 - Corporate information;
(b) Section 2 - Regulatory;
(c) Section 3 - Financial;
(d) Section 4 - Contracts;
(e) Section 5 - Legal proceedings, disputes and investigations;
(f) Section 6 - Intellectual property;
(g) Section 7 - Insurance policies;
(h) Section 8 - Real property;
(i) Section 9 - Employment matters
(j) Section 10 - Environmental matters
(K) Section 11 - Review of all accounting and taxes issues in relation to the company(review of assets and liabilities five last year only)
Do not hesitate to contact us if you need more information on this matter
Originally posted 2012-04-04 20:02:30.