Articles Tagged with due diligence

AdobeStock_86494120-300x200The phrase “due diligence” is often used in the law and is a critical component when contemplating a business transaction. Due diligence means thoroughly investigating and analyzing the facts and key terms of the deal before engaging in a major business transaction, such as acquiring a company or investing in a start-up. These deals involve decisions that can have a significant financial impact, potentially involving millions or even billions of dollars. Therefore, it is essential to ensure that all parties involved are fully informed and aligned before finalizing any agreements.

The experienced Silicon Valley mergers and acquisitions lawyers at Structure Law Group can assist you in performing due diligence before entering into a transaction, either as a buyer or a seller. We know how to spot the various “red flags” that can doom a proposed deal and provide expert guidance on how to steer clear of or resolve such hazards.

The Key Elements of Due Diligence

AdobeStock_196855233-300x200When any party is in the process of merging or acquiring another company, due diligence is absolutely necessary, and many recent mergers and acquisitions (M&As) cases have demonstrated the importance of conducting thorough due diligence reviews or evaluations. When you are in the process of buying another company, you will want to be sure you seek the help of a Texas business lawyer.

Due diligence activities in any M&A transaction can be very expansive, and the costs of conducting due diligence reviews or evaluations are often justified because performing this work typically means companies can avoid the significant costs associated with not performing due diligence. There are five major issues all due diligence reviews should be sure to focus on.

Target Company Overview

AdobeStock_141334922-300x200For many businesses, intellectual property will be their most valuable asset.  Licensing your IP to other businesses is a lucrative way to earn a passive income. Patents are the most common way to earn revenue from your IP, but copyrights and trademarks can also earn revenue.  Nevertheless, there are pitfalls here and you want to ensure that your interests are protected when you license your IP to another company.  In this article, Structure Law Group’s Los Angeles IP attorney will discuss how to protect yourself when licensing out your intellectual property.

IP license agreements and chain of title

Intellectual property is licensed out to another business using a licensing form.  The form, which can likely be downloaded somewhere online, creates a contract between you and the licensee for use.  However, license templates found online will not necessarily protect your company’s interests when licensing your IP.

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Mergers in the tech world are quite common. In a merger, one or more companies combine to form a new company (i.e., legal entity). Mergers can be complex and have many moving parts. The transaction can often include legal documents, valuation, key deliverables, operational logistics, regulatory matters, and financing and payments. A Silicon Valley M&A attorney can assist with your merger M&A transaction and handle multiple facets of the transaction.

Structuring the M&A Transaction

A merger and/or acquisition is a term that can be used to represent several types of transactions. Some M&A transactions might include:

Due-Diligence-300x200There are many reasons why thorough due diligence is indispensable to a successful corporate acquisition. Perhaps most importantly, it is a critical step in ensuring that they buyer has a comprehensive picture of what is being acquired. Both legal and financial interests are placed at risk in any business transaction. If thorough due diligence is not performed, a corporation can incur legal liability to its shareholders for losses sustained in the negligent acquisition. It can also lose significant assets, or waste valuable time and money on litigating the failed transaction. An experienced mergers and acquisitions attorney can protect your business by ensuring that all aspects of your due diligence investigation are conducted accurately, thoroughly, and with a broad-reaching projection for all potential contingencies. While it is not a legal requirement for the due diligence process, hiring an experienced Mountain View mergers and acquisitions attorney it is the best way to ensure that your investigations are thoroughly completed and can also protect a corporation from shareholder claims that its due diligence was incomplete or inadequate.

Due Diligence: The Basics

In general, due diligence is the process by which a buyer or seller performs a comprehensive appraisal of a business asset before executing a sales transaction. On the buyer’s end, this thorough investigation will examine the assets and liabilities of the assets to be purchased, as well as forming a picture of their commercial potential. For the seller, a due diligence investigation will focus on the buyer itself. It is vital for the seller to know whether the buyer has the financial means to consummate the deal. If the transaction will give the buyer any rights to management or control of the seller’s business, it is also important for the seller to learn about those processes, and how the seller’s business operations might be affected by the buyer’s exercise of those rights.

Venture capital (VC) is a form of financing that is provided to early-stage companies that have been deemed to have high-growth potential by venture capital firms or funds.  Typically, venture capital financing is attractive to smaller, newer companies that do not have access to traditional forms of funding such as issuing stock or applying for a loan through a bank.

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Venture capital firms generally provide capital to companies in return for equity shares, which they then sell back to the company for a profit after a specific event, such as an initial public offering (IPO).

While obtaining venture capital financing has many benefits, it has drawbacks as well.  As a result, entrepreneurs should fully explore their options and discuss them with a Silicon Valley venture capital lawyer before entering into any binding agreements.  Some of the common pros and cons of venture capital financing are discussed below.

Often, selection and formation of a startup can be stressful and confusing.  But it is not the end of the process.  In order to protect your startup and its status, many steps must be followed to continue to ensure the startup remains in good standing with local and state laws.  The experienced California corporate lawyers at Structure Law Group, LLP can help entrepreneurs and businesses, at any stage of the process, protect and maintain their corporate form.

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Why It Matters

Formation of a limited liability company (LLC) or incorporation of a startup takes time and money to gain the protections offered by the corporate form.  If a business owner fails to maintain the ongoing requirements, the startup’s status may be put in jeopardy, and as a result, can lose the protection offered by the corporate form.  Maintenance of a corporation or an LLC is a continual process, requiring completion of steps to be in compliance with all applicable California state and local laws.

When forming a Limited Liability Company (LLC), one must choose who will be responsible for managing the operations of the company. LLCs are managed by either its members or by a manager(s) and are, therefore, either member-managed or manager-managed. Some entrepreneurs know which form they want for their business from the start while other don’t know which would be best and don’t know how to come to the right decision.  Consulting with a knowledgeable Silicon Valley corporate attorney will allow the entrepreneur to understand every avenue for their company and reassures them that their business is moving forward in the right direction.

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Member-managed LLCs

In forming an LLC, the “members” are the owners of the company. In a member-managed LLC, the members of the LLC are actively involved in the running of the LLC’s business. It is the members who handle the day-to-day running of the company and share in the responsibility for management decisions.

Real estate transactions are complex and often involve valuable property and a significant sum of money. In a real estate transaction, both the buyer and seller of real estate have significant interests on the line they desire to protect; one way of doing this are escape clauses. Since many things can go wrong in a real estate transaction, real estate contracts include many different provisions and clauses that can come into play during the course of the deal or transaction. It is often wise to have an experienced California real estate attorney draft or review any contracts.

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A real estate buyer understandably wants to be aware of the condition and known risks of the property they are purchasing and to ensure the transaction will not unknowingly cost them more money than anticipated in the long run. On the other hand, if a real estate seller enters into a contract with a particular buyer and stops soliciting other buyers, they can lose out on opportunities  if that buyer suddenly backs out of the deal.

To protect buyers while also protecting the interests of sellers, many real estate contracts in California have one or more “escape clauses”. These escape clauses allow the buyer to withdraw from the transaction if certain circumstances arise and the seller has proper notice that the contract is contingent upon these clauses.

A commercial landlord is confronted with a number of issues when a tenant files bankruptcy. When a tenant files bankruptcy with an unexpired lease, the debtor tenant is given the option to “assume” or “reject” the lease. If the debtor elects to assume the lease, it agrees to be bound by all terms of the lease and it must cure all defaults and provide the landlord with “adequate assurance of future performance” under the lease. If the debtor rejects the lease, the rejection constitutes a breach of the lease, giving the landlord claims for damages.

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Assumption or Rejection. The first question that a commercial landlord will want to know is whether the debtor will assume or reject the unexpired lease.

If the debtor assumes the lease it means that the debtor intends to remain at the property as a tenant (or possible that it plans to assign the lease to a third party). In order for a debtor to assume a lease, the debtor must either not be in default under the lease or it must cure all pre- and post-petition defaults; it must give the landlord “adequate assurance of future performance under the lease,” and it must obtain bankruptcy court approval to assume the lease.