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“ABC company’s merger with XYZ company failed” or “Government claims tax issues in the business deal between ABC and XYZ company.” Quite often you must have gone through these headlines in the newspaper reading which you might have got a bit nervous and tensed and also might have decided for yourself of not having any business deal or any merger with any company.
But that’s not how a business would thrive. If you want your business to grow and not just to remain where it is, then you need to invest in other deals, businesses, merge your company with some other, or to take over small business companies.
So far the fear of loss is considered, it should be there because you are going to take such an important decision, which should not be taken in haste and a fluke and who can help you in this decision is a legal option which many people just don’t even know about, and so they don’t execute this. So sometimes they end up being in a fraud deal or ruining their already existing empire which they had before making the deal.
What is the meaning of the term ‘Due Diligence’?
Due Diligence is a completely legal and authorized detailed investigation carried out by a company or an individual before signing a deal or agreement with some other company or personnel. This deal might not always be as big as a business merge or about company partnership rather it also involves small contracts which company makes with other businesses may be for supply of raw materials or some other service.
The point here is to identify what can go wrong in this business collaboration in Dubai, which is being considered, so that this collaboration is not done, and the company saves itself from making a wrong business decision. So, basically, due Diligence is something which is based on the mere fact that sometimes some mishappening could have been prevented beforehand.
If it is legal, then why other companies are not executing it in Dubai to prevent loss?
Well answer to this question would be that due Diligence is, of course, a legally allowed process and it is the lack of awareness because of which companies in Dubai don’t execute it and end up wasting money and time and reputation in the market. It is so much so legal that any company is obliged to provide you and your company with any document or information required in this process of due Diligence.
Moreover, one more thing which doesn’t help to familiarize this term and process among businesses in Dubai is that due Diligence though allowed by the law is not enforced by them and is not made compulsory for business companies to conduct it before any business deal.
How will the execution of due Diligence help a company?
Company due diligence will help a company with the following things which further helps the company to make the correct decision.
Here due Diligence mainly involves verifying administration related things of the target company such as facilities, occupancy rate, number of workstations, power expenditure, human resources required. This gives the buyer of the company, idea about the operational costs that would be required to run and expand the target company.
It is a check which verifies whether the financial statements as given by the target company are true or not. It involves an investigation about all transactions the target company undergoes including debts, payments, repayments of the loan, thus evaluating the company’s capital structure.
It includes the identification of all kinds of assets the target company possesses and also the identification of their locations. These mainly include all major capital equipment, real estate deeds, mortgages, title policies, and permits.
- Human Resources
This includes the study of the target company’s policies for their employees, mainly about their insurances, schemes for leaves, salary, and also involves the employee’s feedback and understanding their problems.
- Environmental Issues
Due Diligence involves the verification of all the permits and licenses and pollution clearances which the company claims and also involves the investigation of the disposal process which the target company exercises to safely dispose of the waste it generates without causing any pollution.
Tax-related issues have always been a problem, so this is one the most important parts of due Diligence which mainly involves the review of all the taxes company is required to pay and also to ensure that they have undergone proper calculations of tax. It also involves verification of any tax-related case pending with the tax collection bodies. The investigator continuing the process of due Diligence asks the target company for copies of all tax returns including income tax, sales tax for the past three to five years, information relating to past or pending tax audits of the company is also reviewed.
- Intellectual Property Rights
Many companies in Dubai possesses some intellectual property assets to monetize their business, these are intangible assets and includes patents, patent applications, copyrights, trademarks, brand names, pending patents clearance and also about all the cases by or against the company concerning violation of these assets.
This includes the examination and analysis of all loan agreements, bank agreements, copies of share certificates, and going through the minutes of all Board meetings held in the last three years or so. The review is also done of all agreements the target company has made themselves before, with other companies and individuals.
Customers are finally the thing which any company will deal with and understand someone’s business; you need to talk to their customers about what services they avail, what they like about the company, what more they expect. This is done mainly by the review of customer policy and customer feedback and the service agreement they sign.
- Market Research
It mainly involves the research done in the market about the target company and about its product that whether it has that much demand in the market that you should invest in it.
With such extensive benefits on offer, the process of undertaking company due Diligence is entirely worth the efforts.