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This blog post will be useful to businessmen interested in the private acquisition of company shares.

Buying shares in a company implies a preliminary agreement between the buyer and the seller of the shares, with the result that the seller agrees to sell a certain number of shares at a certain price. Such agreements relate to M&A transactions and are usually concluded when an investor acquires a company in whole or in part.  The transaction is usually accompanied by a thorough due diligence (DD) of the M&A deal including the legal part. On this part, we will focus your attention below.

What does legal DD of M&A deals involve?

It is natural, when a company acquires all or a part of the company's shares, that investor also acquires the company's liabilities. Hence, DD is a fundamental study of a target company that is vital for the buyer to make his final decision to buy a company or not.

From a legal point of view, DD usually comprises thorough analysis of:

  •  commercial contracts; 
  • service contracts; 
  • vendor contracts; 
  • rental agreements;
  • employee contracts; 
  • litigation involving the target; 
  • usage of trademarks; 
  • AML; 
  • privacy and data protection, etc. 
  • financial statements of the acquiree.

The check and analysis are conducted by independent auditors. International M&A deals also involve scrutinizing actual assets and fulfilling staff obligations.

The buyer’s official representatives/legal advisors interview  related personnel of the target, as well as review all related documentation to identify whether there will be any legal problems in the future.

DD procedure

Any company considered as a potential purchase target provides the buyer's auditors with a wide range of materials for verification. Inspection data is stored digitally and law firms and third parties provide their own server and cloud platforms where all DDs are uploaded by the seller. Access to such information must meet strict non-disclosure requirements. Therefore, the priority task is to determine the circle of access to such information.

For your info

The difference between buying stocks and buying assets

Buying an asset can be beneficial as it allows the buyer to acquire the company's property without the obligations that would accompany the asset when buying shares. Asset purchase involves buying real estate, equipment, as well as lease agreements.  Due diligence in the asset purchase deal  is mandatory, especially with regard to the ownership or liens of these assets.

Drafting Share Purchase Agreement correctly

Before spending time drafting the agreement, the parties should discuss and agree on all key terms of the share acquisition, which can then be incorporated into the agreement. The parties' preliminary agreement on these conditions provides a number of advantages:

  • Prioritizing key issues before they are included in a long legal document;
  • Significantly reduced likelihood of subsequent disputes;
  • Ability to take advantage of protective restrictions regarding negotiation terms;
  • Significant reduction of legal costs.
Final word

If you want to receive more detailed information, we suggest that you sign up for a consultation on M&A deals from our expert. We have extensive experience in providing assistance to such transactions in various jurisdictions. Also, if you have a need to conduct legal due diligence for a private M&A deal, as well as a legal analysis of potential risks for the target and the investing company, then our experienced solicitors are at your service.