Legal due diligence

What is happening

A buyer has agreed a price for a stake in a manufacturing company, and the seller is pressing to sign. The title documents for the property and equipment will be "sent later", and the company has changed hands several times in recent years.

An investor is coming into a growing business and wants to know who really owns the trade mark, the website and the source code: the company, the founder personally, or a contractor who once did the development.

A lender is prepared to finance against a pledge of shares or assets and wants an independent review of the borrower: hidden disputes, encumbrances, and transactions that could be unwound if the company ever goes insolvent.

What the law says

• Title to a participatory interest in an LLC is traced through every transaction and resolution since incorporation. Federal Law No. 14-FZ of 8 February 1998 "On Limited Liability Companies" (the LLC Law) requires notarisation of most transfers and compliance with pre-emption rights; a gap in the chain puts the buyer's title in doubt.
• For a joint-stock company, title is evidenced by entries in the shareholder register, and corporate procedures are checked against Federal Law No. 208-FZ of 26 December 1995 "On Joint-Stock Companies".
• Extracts from the state register of legal entities, kept under Federal Law No. 129-FZ of 8 August 2001 "On State Registration of Legal Entities and Individual Entrepreneurs", and from the real estate register under Federal Law No. 218-FZ of 13 July 2015 "On State Registration of Real Estate" are a starting point, not proof that there are no risks. We check them against the source documents.
• Major and related-party transactions entered into without proper approval can be challenged, and in insolvency, suspect and preferential transactions are open to challenge under Federal Law No. 127-FZ of 26 October 2002 "On Insolvency (Bankruptcy)". So we also look at how assets have moved around in the past.
• For licensed activities, we check that the licence is held by the company itself and whether a planned reorganisation would require it to be reissued under Federal Law No. 99-FZ of 4 May 2011 "On Licensing of Certain Types of Activity". We also assess whether the deal needs competition clearance and whether restrictions on transactions with persons from unfriendly states apply.
• The risks identified are carried into the contract: representations as to circumstances and indemnities for losses under the Civil Code, conditions precedent, price adjustments and escrow.

What we do

• We prepare a document request tailored to the deal and help set up the data room.
• We review the corporate history: incorporation, changes to the charter, transfers of interests or shares, resolutions of governing bodies and the director's authority.
• We verify title to key assets and any encumbrances: real estate, land, equipment, trade marks, software and domains.
• We analyse material contracts: change-of-control clauses, penalties, grounds for unilateral termination, and guarantees or sureties given for third parties.
• We examine litigation, enforcement and tax disputes, inspections and orders, as well as claims that have not yet turned into lawsuits.
• We look at employment and personal data handling to the extent they carry real risk.
• We deliver a report: key risks first, then findings by block and specific proposals for the sale and purchase agreement.

What we will need from you

• A description of the deal: what is being acquired, the structure, the timetable and the heads of terms.
• Constitutional documents, resolutions of participants and the board, share transfer agreements or shareholder register extracts.
• Title documents for the assets and information on encumbrances.
• A list of material contracts and the contracts themselves with the largest counterparties, lenders and landlords.
• Information on disputes, inspections, claims and enforcement proceedings.
• A contact person on the seller's side for requests and questions.