‘It is better to be careful than to be sorry’, this acronym if followed in every aspect of life helps an individual from probable losses or damage. Same is required in business transactions and is called due diligence audit.
Due diligence is the all round appraisal of a business undertaken by the prospective buyer, especially to establish its assets and liabilities and to evaluate its commercial potential. It is in fact, an investigation, audit or review performed to confirm facts or details of a specific matter under consideration.
Conducting due diligence is an arduous task and is not a cup of tea of a common man. It requires comprehensive assessment of various aspects of the company including financial matters, enquiry about assets, legal issues, and many more so that a more informed decision is reached.
It is therefore advisable to hire the professional due diligence services in India to conduct the entire procedure so that you get true and fair picture of the scenario at large.
The process of due diligence is performed before any sale of the business, private equity investment. It is the process of analysis and research carried out by the professional experts before an investment, acquisition, business partnership, Bank loan, joint venture, for determining the value of the subject of the due diligence and to see whether there are any major issues involved.
Here is the checklist of due diligence audit carried out by a leading due diligence services in India:
1. Documents that are required and to be kept ready: Usually important documents pertaining private limited or limited company are required for performing due diligence:
- Articles and Memorandum of Association
- Certificate of incorporation
- Financial statements
- Income tax returns
- Tax payment receipts
- Property documents
- Utility bills
- Operational and employee records
- Statements of bank
- Operational records and statutory registers
2. Review of Ministry of Corporate affair documents: Most of the investigation starts with reviewing master data about the company in the MCA website. Information gathered here includes company information, information of the director, charges registered, and important documents. The review of MCA documents provides clear picture of the company to the due diligence officers and person who is performing due diligence.
3. Review of Articles of Association: It is very important to review articles of association during the process. This helps to ascertain varied classes of equity shares and their voting rights. Also, the procedure of transfer of shares can be ascertained.
4. Review of statutory Registrar of Company: Under the Company’s Act 2013, a private limited company is required to maintain various statutory registers pertaining to share allotment, share transfer, board of directors, board meetings etc.
5. Review of financial statements and books of accounts: Assessing accounts books and financial statement detailed financial transaction information is audited by the due diligence officers. The officers; audit- bank statements, cash flow information, valuation of assets and liabilities and financial statements in detail.
6. Review of tax matters: The officers thoroughly check the tax matters of the company to make sure that there are no unforeseen tax liabilities on future date. Various tax related documents like IT returns filed, IT paid, TDS payments, GST payments etc are checked.
7. Review of legal aspects: Legal audit is conducted by lawyer to ascertain if there are any pending legal actions, suits or against the company and liability in each.
8. Review of operational aspects: Here the due diligence team audits the business operations, business model and information of the employees by verifying the customers, employees, machinery used, utilities, and production and vendor information.
