Transactional Due Diligence

What does transactional due diligence entail?

Transactional due diligence involves a comprehensive assessment of a company’s legal, financial, and operational aspects to evaluate potential risks and liabilities before a corporate transaction, such as a merger, acquisition, or divestiture, occurs. It aims to protect the interests of all parties involved by identifying any potential legal or financial issues and ensuring compliance with applicable laws and regulations.

One common example of when corporate executives or boards of directors require counsel on transactional due diligence is during an acquisition or merger. In this scenario, legal counsel must thoroughly examine the target company’s assets, liabilities, contracts, and compliance with relevant laws to protect the acquiring company from unforeseen risks.

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Which Florida and federal laws and regulations apply to transactional due diligence?

Transactional due diligence in Florida follows state and federal laws. At the state level, the Florida Business Corporation Act (FBCA) and Florida Revised Limited Liability Company Act (FRLLCA) guide corporate transactions, including mergers, acquisitions, and dissolutions. These statutes set forth the procedural requirements, fiduciary duties of directors and officers, and other pertinent provisions during the transactional due diligence process.

At the federal level, the Securities and Exchange Commission enforces the Securities Act of 1933 and the Securities Exchange Act of 1934, which regulate the disclosure of information during corporate transactions. The SEC requires companies to provide accurate and complete information to investors and the public. Accordingly, legal counsel must ensure clients make all necessary disclosures during the transactional due diligence process.

What are common issues regarding transactions that lead to litigation?

The following issues are among the most common in litigation involving transactional due diligence:

Inadequate Disclosure: Parties may be liable for failing to provide sufficient, accurate, and timely information during a transaction, which can lead to disputes and litigation.
Misrepresentation or Fraud: Parties may be held liable for providing false or misleading information during the transaction, which can have significant legal consequences.
Breach of Contract: A party could face liability for failing to fulfill its contractual obligations during the transaction, such as not meeting specific performance requirements or payment terms.
Violation of Fiduciary Duties: Corporate officers and directors may face litigation if they fail to act in the company’s or its shareholders’ best interests during a transaction, resulting in financial harm.
Noncompliance with Regulatory Requirements: Companies may face litigation if they fail to comply with applicable state and federal regulations during a transaction, such as securities and antitrust laws.
Post-Transaction Disputes: Issues may arise after a transaction, such as disputes over indemnification provisions, earn-outs, or representations and warranties.

What are effective measures to minimize the risk of litigation over transactions?

Implementing the following strategies may help mitigate risk:

Assemble a Multidisciplinary Team: Engage professionals from various fields, such as legal, financial, and operational experts, to ensure comprehensive due diligence.
Develop a tailored due diligence plan: Identify the specific goals, objectives, and scope of the due diligence process based on the nature of the transaction and the parties involved.
Thoroughly Review Documentation: Examine all relevant documents, including contracts, financial statements, regulatory filings, and intellectual property portfolios, to gain a complete understanding of the target entity’s business and potential risks.
Accurate and Complete Disclosure: Provide timely, accurate, and complete information during the transaction process to minimize the risk of disputes related to inadequate disclosure or misrepresentation.
Clearly Define Contractual Obligations: Draft unambiguous contracts that outline each party’s obligations, rights, and responsibilities to minimize the risk of contractual disputes.
Implement Strong Internal Controls And Compliance Programs: Develop and maintain adequate internal controls and compliance programs to ensure adherence to applicable laws and regulations.
Establish Open Communication Channels: Maintain open lines of communication between all parties involved to address issues promptly and minimize the potential for misunderstandings or disputes.

When a set of facts is appropriate to meet litigation requirements, there are many paths a claimant may take. We are value-based attorneys at Jimerson Birr, which means we look at each action with our clients from the point of view of costs and benefits while reducing liability. Then, based on our client’s objectives, we chart a path to seek appropriate remedies.

To determine whether your unique situation may necessitate litigation, please contact our office to set up your initial consultation.

Frequently Asked Questions

What is the importance of transactional due diligence in corporate transactions?

Transactional due diligence is critical in corporate transactions as it helps parties understand a transaction’s risks, liabilities, and potential benefits. It ensures that parties make informed decisions, mitigates the risk of future disputes, and facilitates a smoother transaction process.

2. How long does the transactional due diligence process typically take?

The duration of the transactional due diligence process varies depending on the transaction’s complexity, the target entity’s size, and the scope of the due diligence review. Generally, the process may take a few weeks to several months.

3. Can transactional due diligence be conducted remotely, or is it necessary to visit the target entity’s premises?

While some aspects of transactional due diligence can be conducted remotely, such as document review and virtual meetings, site visits and in-person interviews can provide valuable insights that may not be obtained otherwise. Therefore, a hybrid approach of remote and on-site due diligence is often the most effective.

Have more questions about governance or operations for your business?

Crucially, this overview of transactional due diligence does not begin to cover all the laws implicated by this issue or the factors that may compel the application of such laws. Every case is unique, and the laws can produce different outcomes depending on the individual circumstances.

Jimerson Birr attorneys guide our clients to help make informed decisions while ensuring their rights are respected and protected. Our lawyers are highly trained and experienced in the nuances of the law, so they can accurately interpret statutes and case law and holistically prepare individuals or companies for their legal endeavors. Through this intense personal investment and advocacy, our lawyers will help resolve the issue’s complicated legal problems efficiently and effectively.

Having a Jimerson Birr attorney on your side means securing a team of seasoned, multi-dimensional, cross-functional legal professionals. Whether it is a transaction, an operational issue, a regulatory challenge, or a contested legal predicament that may require court intervention, we remain a tireless advocate every step of the way. Being a value-added law firm means putting the client at the forefront of everything we do. We use our experience to help our clients navigate even the most complex problems and come out the other side triumphant.

If you want to understand your case, the merits of your claim or defense, potential monetary awards, or the amount of exposure you face, you should speak with a qualified Jimerson Birr lawyer. Our experienced team of attorneys is here to help. Call Jimerson Birr at (904) 389-0050 or use the contact form to schedule a consultation.