Due diligence when acquiring a company: what a business lawyer checks
An acquisition that looks favourable at first glance can hide debts, lawsuits or problematic contracts that only surface after signing, if you skip due diligence. It is the step that separates a successful acquisition from one that turns into a legal and financial nightmare.
What due diligence is and why it matters
Due diligence is the in-depth review of a company before an acquisition, merger or investment: a complete picture of its legal, financial and operational situation. The goal is not only to spot problems, but also to renegotiate the price or add protective clauses (warranties, indemnities) based on the risks found.
What a business lawyer actually checks
- Corporate structure: constitutive documents, capital change history, the register of shareholders and beneficial owners;
- Commercial contracts: change of control clauses, exclusivity terms, penalties and hidden obligations toward key suppliers or clients;
- Ongoing litigation: lawsuits, enforcement proceedings, tax authority inspections;
- Compliance: GDPR, AML/CFT, permits and licences, sector-specific regulations;
- Assets and encumbrances: properties, pledges, mortgages or charges on the company’s assets.
Common risks uncovered in due diligence
In practice, the most frequent issues are contracts with automatic termination clauses triggered by a change of ownership, undisclosed litigation, outstanding tax liabilities, and unclear governance structures that complicate taking effective control of the company. Any of these can justify a lower price or additional protective clauses in the sale and purchase agreement.
How a law firm for companies helps in this process
At Sabău Avocați, our mergers & acquisitions team coordinates full due diligence together with our law firm for companies specialists (corporate structure and contracts) and compliance & regulatory (GDPR, AML). The result is a clear report, with risks ranked by priority and concrete recommendations for negotiation, not just a list of technical observations. For strategic legal advisory ahead of the transaction, see also our business lawyer page.
Frequently asked questions
How long does due diligence take?
Depending on the complexity of the company, between 2 and 6 weeks. Simple transactions can be reviewed faster; groups of companies or businesses with a complex history need more time.
Who pays for due diligence: the buyer or the seller?
Usually the buyer hires its own lawyer for due diligence, but in some cases the seller prepares a “vendor due diligence” report to speed up the process and increase buyer confidence.
What happens if due diligence uncovers serious problems?
It does not automatically cancel the deal. It often leads to renegotiating the price, adding extra warranty clauses, or making closing conditional on resolving the identified issues first.