Monday, August 15

Company Due Diligence Checklist

Due Diligence of a Company is the process of reviewing the company legal, compliance, and financial aspects of the company. A company due diligence is recommended during purchase or sales or lending or investment or acquisition or merger or other business transactions. The major challenges in the due diligence process are 1. Scope of Due Diligence 2. Sources of Information 3. Aggregation of Information 4. Analysing the information 5. Making informed decisions, and last but most importantly performing all these actions in time.

It is important for any business to establish a reliable and robust company due diligence process to make faster and informed business decisions.

Table of Content

What is Company Due Diligence?

The term Company Due Diligence refers to the process of reviewing and documenting legal, financial, and compliance aspects of the company. In simple words, it is a background check to make sure that the parties to the transaction have the required information they need, to proceed with the transaction. Due diligence of a company is usually performed before the customer or vendor onboarding, business sale, private equity investment, bank loan funding, etc., In the due diligence process, the financial, legal and compliance aspects of the company are usually reviewed and documented.

When is Company Due Diligence Required?

Company Due Diligence Checklist
Company Due Diligence Checklist

The most common requirement of due diligence arises at the time of 

  • Customer Onboarding
  • Vendor Onboarding
  • Venture Capital Investment
  • Mergers & Acquisitions
  • Strategic Alliances

Other than this, there are certain transactions that require proper Due Diligence- Partnership, Joint Enterprise and Collaborations, Public offerings, Business Coalitions, Outsourcing Agreement, Technology or Product Licensing, Joint venture through Technical or Financial Collaboration.

Company due diligence is essential while offering business loans and making business transactions on credit terms to minimize the business risk.

Types of Company Due Diligence

Based on the nature of relationship that you will have with the other company while performing the Due Diligence process, we can define the Due Diligence to the following types:

  • Customer Due Diligence – It is the process used by financial institutions or companies or enterprises  to collect and evaluate relevant information about a customer or potential customer while onboarding them.
  • Vendor Due Diligence – It is the process used by financial institutions or companies or enterprises  to collect and evaluate relevant information about a supplier / vendor or potential supplier / vendor while onboarding them.

Based on the nature of information that we verify during the due diligence process, the due diligence can be classified as Business Due Diligence, Financial Due Diligence, Legal Due Diligence, Operational Due Diligence, Strategic Due Diligence, Technical Due Diligence, Environmental Due Diligence and Human Resource Due Diligence etc.

Significance & Challenges in Company Due Diligence

A proper Company Due Diligence is required to reveal misrepresentation and fraudulent dealings in a major business transaction. This can be an important step to ensure the safety and integrity of your business relationship.  A well performed company Due Diligence helps you to make an informed business decision, increase possibility of a successful business association and prevent business risk.

Some of the challenges in the Company Due Diligence process are:

  • Lack of knowledge of the due diligence process
  • Lack of knowledge of sources from where the key information can be obtained
  • Relying only on the documents provided by the other party 
  • In ability to verify the information provided by the other parties
  • Friction between the parties during data aggregation
  • The time delays in gathering, reviewing and confirming the completeness of the information

Getting the key information at the right time is very important. With the help of technology and publicly available free & paid resources, it is possible to automate the data aggregation, validation and analysis.

A Review of Public Company Information

The below mentioned public information about companies registered in India can play a significant role in performing a seamless and timely company due diligence. You can aggregate the information about the company from various reliable public sources or InstaFinancials etc.

Company Master Information

  • Legal Name, CIN, & Date of Incorporation
  • Status & Last Balance Sheet Date
  • Registered Address
  • Industry Classification

Directors Master Information

  • Name, DIN & Appointment 
  • Disqualification & Deactivation Status
  • KYC & Contact 
  • Current & Past Directorship 
  • Director RedFlags

Charges Master Information

  • Open Charges
  • Satisfied Charges
  • Charge Holder Name, Amount, 
  • Outstanding years, Creation Date, Satisfaction Date & 
  • Assets Secured

Charge Search Report Documents 

  • Open Charges, Satisfied Charges, Future Charges
  • History of each open charge

Financials

  • Balance Sheet, Profit & Loss & Cash Flow Statement
  • Financial Ratio Analysis
  • Financial & Non-Financial Schedules
  • Audited Financials Statements & Directors Report
  • Misc Disclosures Related to Balance Sheet
  • Standalone and Consolidated Financials

Corporate Directory

  • Parent Company
  • Subsidiary Companies
  • Shareholders or Ownership Details and 
  • Related Parties

Credit Ratings 

  • Assigned in Last 1 Year & Older than Last 1 Year

Compliance

  • GST Filing Compliance 
  • MCA Filing Compliance
  • EPFO Filing Compliance

Employment

  • Employment Count
  • EPF Amount Paid
  • Establishment Details

Legal Cases & Defaults 

  • Legal Case & Other Cause List
  • Legal Cases Filed Against the Company
  • Legal Cases Filed by the Company
  • High Court, Supreme Court, District Level Courts
  • Statutory & Regulatory Default
  • MCA Serious Complaints
  • Suite Filed Cases 

Company News & Sentiment Analysis

RedFlag Analysis

  • Financial RedFlags
  • Non-Financial RedFlags

Company Public Documents & MCA eForms

Financial Statements and Annual Returns

  • Audited Financial Statements, 
  • Annual Return and Shareholding 
  • Directors Report & Auditor Report 

Charge Management 

  • Creation forms & Modification forms

Private Placements & Change in Capital 

  • Private Placement and List of allottees, 
  • Change in Share Capital & 
  • Other Issues and buybacks 

Incorporation and Registrations 

  • Incorporation Certificate 
  • AOA and MOA
  • Name, CIN & address change forms

Certificates

  • Certificate of Incorporation
  • Certificate of Registration of Charge Modification

Change in Directors

  • Appointment of Directors
  • Registration Notice
  • Evidence of Cessation 
  • Removal of Directors

Other eForm Documents & Attachments

  • Appointment of Directors
  • Registration Notice
  • Evidence of Cessation 
  • Removal of Directors

How to Aggregate the Information?

The first step in any due diligence process is to gather company, storing & presenting information in easy to consume format. Most commonly many collect the information from the company under verification or evaluation. But we cannot rely only on the information provided by the company under verification. We must verify the information provided against a reliable source to make informed decisions and prevent possible financial or business risk. Hence, you may collect the information from the following sources that can be used to verify the integrity & accuracy of the information:

  1. Collect data from various public sources, deal with different formats, read the data from multiple pages or documents, use various tools and spend a lot of time converting the data into consumable format
  2. Use a 3rd party service such as  InstaFinancials.  Service providers such as InstaFinancials will help you with the decision critical information sourced from various public sources to enable you to make decisions well informed and faster. 

InstaFinancials is an award winning corporate intelligence platform offers in depth insights about the companies registered in India. Please refer to a sample Brisk report that offers the most comprehensive actionable insights about any Indian company here.

Can you Automate the Data Aggregation?

The customer or vendor due diligence process can be automated to a great extent. However, there are still certain aspects of it that need to be manually scrutinized. 
API services offered by the data aggregation & corporate intelligence provider such as InstaFinancials help you accelerate your due diligence effort and channelize resources where attention is needed.

Leave a Reply

%d bloggers like this: