{"id":4472,"date":"2015-07-07T08:00:36","date_gmt":"2015-07-07T08:00:36","guid":{"rendered":"http:\/\/www.asociacion-eurojuris.es\/en\/?p=4472"},"modified":"2020-04-11T07:16:22","modified_gmt":"2020-04-11T07:16:22","slug":"the-importance-of-due-diligence-in-business-transfer-operations","status":"publish","type":"post","link":"https:\/\/www.asociacion-eurojuris.es\/en\/the-importance-of-due-diligence-in-business-transfer-operations\/","title":{"rendered":"The importance of due diligence in business transfer operations"},"content":{"rendered":"

It appears, from recurrent jurisprudence, that during a business acquisition process, the burden of risk related to the object sold is on the buyer if he would have knowledge of them if he had shown due diligence. Due Diligence is required of any buyer and entails consulting documents in buyer\u2019s possession or by performing simple acts of management.<\/p>\n

Therefore, failure to conduct a due diligence when buying a business can qualified as gross negligence on the part of the buyer.<\/p>\n

It is important to keep in mind that due diligence, normally used in the scope of business acquisitions<\/a>, refers to the information search process led by the potential buyer on the business that he plans to acquire.\u00a0 Such investigation focuses on several aspects of the business such as its scope of activity, its possibilities and future prospects, its assets and liabilities, etc.<\/p>\n

Thus, the main purpose of the due diligence is to gather the information needed to objectively estimate and set the final price of the business acquisition operation, the transaction structure or the warranties to demand. If information emerges that could pose risks to the economic viability of the transaction, the buyer may reverse his decision.<\/p>\n

Within this process of due diligence, we can identify two types of analysis:<\/p>\n

The economic and financial analysis<\/strong><\/span><\/h2>\n

It is to study the financial situation and to evaluate the business\u2019s tangible and intangible assets (buildings, trademarks, market listing score, etc.). Through this analysis, the potential buyer will not only get a description of the business, the sector in which it operates and its strategies, but also information about the business\u2019s accounting systems, internal control, financial situation, organization and human resources as well as environmental factors among others.<\/p>\n

Within these analyses, we will detail two of them because of their importance and their relevance during the process of business acquisition:<\/p>\n

    \n
  • Financial due diligence<\/strong>: to evaluate the financial situation of the business by contextualizing the information in the industry in which it operates. The goal is to study several of its aspects in order to compare the business\u2019s financial ratios with the average in its industry and thus be able to appreciate the company\u2019s operations as well as its market position.<\/li>\n
  • Trade due diligence<\/strong>: this allows the buyer to analyse market competition, know the trade dynamics of the industry and the market volume in which the business operates as well as its strategic lines.<\/li>\n<\/ul>\n

    The legal analysis<\/strong><\/span><\/h2>\n

    Includes the review and study of the contracts, social issues and potential litigation of the business. Such analysis also includes the study of labour and tax issues.<\/p>\n

      \n
    • Legal due diligence<\/strong>: evaluate the structure of the company (articles of incorporation, bylaws, societal modifications etc.), the contractual (employees, departments, delegations, etc.) and administrative (everything that relates to licenses and permits) situation. The patents, trademarks and trade names of the business should also be analysed. Finally, the potential buyer should also inform himself about the business\u2019s past, current and future litigations.<\/li>\n
    • Tax due diligence<\/strong>: conduct a review of the main taxes charged to the company (corporate tax, value added-tax, withholdings on income tax, local taxes etc.). This also permits the buyer to conduct a preliminary study of the fiscal sustainability of the projected transaction, to estimate the impact of tax expenses on the financial plans, to discover tax assets and liabilities as well as determine the warranties for eventual tax risks, among others.<\/li>\n<\/ul>\n

      Lastly, it is important that the process of due diligence is conducted by industry experts, who understand the business of the company and who will, therefore, know where to investigate to ensure that the company is as represented by the seller and that there is no hidden data.<\/p>\n

      In\u00e9s Ducom & Nicol\u00e1s Melchior<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

      Prior to a transfer of a business in Spain, one should carry out a due diligence in order to analyse the economic, financial and legal aspects of the business to be acquired. The process will help set an objective price for the transfer of the company and help avoid any risk of defects related to the company sold.<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1064],"tags":[],"class_list":["post-4472","post","type-post","status-publish","format-standard","hentry","category-pubications"],"yoast_head":"\nDue diligence in business transfer operations in Spain<\/title>\n<meta name=\"description\" content=\"It is very important to perform a legal due diligence prior to any operation of transfer, sale or purchase of businesses in Spain.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"http:\/\/www.mariscal-abogados.com\/the-importance-of-due-diligence-in-business-transfer-operations\/\" \/>\n<meta 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