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Due Diligence

All about Due Diligence requirement in India along with Due Diligence advisory are covered here.

Package Inclusions –
  • People Due Diligence
  • Financial Due Diligence
  • Regulatory Due Diligence
  • Environmental Due Diligence
  • Due Diligence Advisory
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What is Due Diligence?

Due diligence is one of the best ways that enables businesses to take well-informed decisions of pertaining to a situation. Due diligence is generally performed by a company before any business sale, private equity investment, bank loan funding, etc., The conditions of the particular situation are investigated utilizing a standard to create a clear picture of the situation thereby enabling better and effective decision making.

What are the main objectives of Due Diligence?

1. The Due Diligence process is a manual tool to check that the business you want to purchase is –

  • Financially stable
  • Legally sound,
  • Check the stability of the Company,
  • Knowing all the essential facts of the Company

2. It is required to be examined so that the buyer or acquirer can make an effective decision

3. It ensures a health check for the Company by exercising proper planning and execution.

4. Minimize the chances of acquiring unknown liabilities or risks

5. Identifying existing issues or problems of the business that may grow into higher proportions giving rise to unexpected liabilities in the future.

6. Determining the value of the business and accordingly negotiate the correct price

7. It is also undertaken as a sign of good corporate governance.

In which cases Due Diligence is required?

  • Merger
  • Acquisition
  • Funding a start up
  • Privatization
  • Asset tracking
  • Investigation
  • The signing of any major contract.

How can Enterslice help in the Due Diligence Process?

Professional due diligence companies are hired by the buying company or the investor after the Letter of Intent is signed but before a formal purchase agreement is entered by the involved parties. The documents are asked on the basis of the checklist and then a Summary report is generated.

Enterslice shall assist in the same, enabling a well-defined due diligence structure for the organization. Thus, Enterslice provides with a complete business due diligence and assessment services along with a comprehensive report. We have a very smooth workflow. You can contact us in the following manner;

  • You can visit our website and submit inquiry along with required information in ‘Request a call back’ section for Due Diligence Process.
  • Once the query is generated our Due Diligence Services expert executive will give you a call back in 4-5 days.
  • Our experts can clear all your doubts and in case of any further query and information on Due Diligence Process you can send us an email on info@enterslice.com
  • Once the order is created a unique order number will be shared which can be used to track the progress of the order.
  • You can provide the required documents and information either through email or you can also upload them using our Enterslice Mobile app is available on Android and Apple App Store.
  • Once partial payment is received your order will be assigned to our expert service team, who will conduct proper due diligence and document everything in a comprehensive Due Diligence report.
  • You can track the order for Due Diligence Process Services at every step of the way using the Order number shared with you. For any kind of feedback or complaints, you can write to us at care@enterslice.com

What are the steps involved in a Due Diligence Process?

Due diligence process typically consists reviewing the mandatory due diligence checklist points of the following key areas:-

  • The first step is to draw up a non-disclosure agreement (NDA)between the concerned parties wherein the pre-decided terms and conditions of the business due diligence are specified.
  • Operational Due Diligence– in this step the due diligence advisory will collect and study information and documents related to operational data about the business.
  • Financial Due Diligence– the due diligent company will raise questions and review documents on topics related to the target company’s last three years financial statements, whether the statements are audited or not, whether the margins are growing or decreasing, what are the company’s future projections and whether the assumptions are reasonable or not, what kind of working capital will be required to continue the operation of the company,  what expenditures and investments are required to grow the business, what is the debt position, the ageing accounts receivable position etc. 
  • Legal due diligence– here the due diligent companyreviews and studies all relevant legal and regulatory documents of the target company and even interviews related people. The purpose is to check for all legal risks associated. Documents pertaining to registrations, compliances, intellectual property rights, litigations etc are evaluated in details.
  • The last step involves preparing the report or putting together the results of the business due diligence process which is then shared with both the parties.

What is Due Diligence Checklist?

The checklist consists of Financial due diligence checklist, legal due diligence checklist, operational checklist, HR checklist etc. The various financial, legal and other types of documents that are reviewed and evaluated by the due diligence advisory include -

  • The Certificate of Incorporation
  • The Memorandum of Association
  • The Articles of Association
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Tax registration certificates
  • Shareholding structure
  • Statutory receipts
  • Property documents
  • Intellectual Property Certification or Application
  • Utility bills like electricity bills, water bills
  • Environmental audits, license, and permits
  • The Organization chart and biographical information
  • Labor disputes, if any
  • Employment and loan agreements
  • Employee benefits documents
  • Employment manual and policies
  • Operational records related to the list of company’s suppliers, monthly manufacturing capacities and yield, the backlog of production, inventory reports etc.

The above M&A due diligence checklist actually needs to start with the checking of records at the online site of the Ministry of Corporate Affairs. In fact, the ROC charges a nominal fee for making an inspection of available information related to another organization.

It is also equally necessary to check for tax-related documents, other than checking the financial statements, cash flow information, and valuation of assets and liabilities of the company. Taxation related documents that form part of the due diligence checklist are – the ESI/PF returns filed, ESI/PF payments done, ESI/PF payment calculation, payment of service tax/VAT/GST, TDS returns, TDS payments and TDS calculations.

Though the M&A due diligence checklist involves time and money it is the ideal way to save a business from impending financial disaster and irrevocable embarrassment to the reputation of the acquiring company. In today’s modern business world, it is considered to be a mandatory step to meet legal and regulatory requirements and also to encourage corporate integrity and confidence of customers.

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Frequently Asked Question

Due diligence and audit is not the same thing. Due diligence is all together with a different concept when compared with the auditing process. It is neither an audit nor a valuation of the target company. Due diligence does have standard procedures, and it overlaps with an inspection in purpose and method.

Carrying out a detailed investigation of the target company helps the potential buyer to correctly assess relevant financials of the company so that the chances of acquiring unknown risks and unexpected liabilities are minimized. Based on the due diligence advisory report, the buyer is able to determine the true value of the business and negotiate accordingly.

Due Diligence process involves a review of

  • operational due diligence,
  • financial due diligence and
  • legal due diligence based

On the basis of which the due diligence advisory team prepares the summarized report.

Due Diligence is extremely important in case of Mergers and Acquisitions as well as privatization of companies.

All documents related to the operations, HR, finance, sales & marketing and legal documents are thoroughly reviewed as part of the due diligence process. Some of the key documents that are investigated are –

  • The Certificate of Incorporation
  • The Memorandum of Association
  • The Articles of Association
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Tax registration certificates
  • Shareholding structure
  • Statutory receipts
  • Property documents
  • Intellectual Property Certification or Application
  • Utility bills like electricity bills, water bills
  • Environmental audits, license, and permits
  • The Organization chart and biographical information
  • Labor disputes, if any
  • Employment and loan agreements
  • Employee benefits documents
  • Employment manual and policies
  • Operational records related to the list of company’s suppliers, monthly manufacturing capacities and yield, the backlog of production, inventory reports etc.

Any person who has the knowledge of law can perform a due diligence. They can be-

  • Chartered Accountant
  • Company Secretary
  • Lawyer
  • Cost and Work Accountant
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