What is legal due diligence?
Legal due diligence — LDD or legal diligence — is the workstream in which the buyer's counsel reviews the target's legal foundation: its corporate structure and ownership, its material contracts, its litigation and disputes, its regulatory compliance, its intellectual property, and its employment and benefit arrangements. The goal is to confirm the buyer is getting clean title to what it thinks it is buying, and to surface the legal risks that come attached.
Where financial diligence tests the numbers, legal diligence tests the rights and obligations behind them. A contract with a change-of-control clause, an unassignable license, a pending lawsuit, or a defect in the chain of share ownership can each materially change what the buyer is acquiring.
Findings feed straight into the purchase agreement. Many legal diligence issues are not deal-breakers but are resolved through specific representations, indemnities, conditions to closing, or items on the disclosure schedule.
What legal diligence reviews
LDD works across the legal surface of the business.
- Corporate and ownership. The cap table, the chain of title to shares, and whether the seller can actually deliver clean ownership.
- Material contracts. Customer, supplier, and partner agreements — especially change-of-control, assignment, exclusivity, and termination provisions.
- Litigation and disputes. Pending, threatened, and historical claims, and the contingent liabilities they create.
- Regulatory and compliance. Licenses, permits, and adherence to the rules of the target's industry.
- Intellectual property. Ownership and validity of the IP the business depends on, and any encumbrances on it.
- Employment and benefits. Key contracts, equity arrangements, and any liabilities tied to the workforce.