Financial, legal, tax review

Category: Corporate Advisory. From ₹24,999. Typical timeline: 14–30 days.

Overview

Due diligence is the structured investigation of a target company's financial, legal, tax and operational records before a merger, acquisition, investment or major contract, aimed at surfacing liabilities, compliance gaps and deal risks that are not visible from the target's own representations. Kanoons runs financial, legal and tax due diligence in parallel workstreams and delivers a consolidated report flagging red flags, deal-breakers and issues requiring contractual protection (indemnities, price adjustment or conditions precedent).

Who needs it

• An investor about to fund a company and wanting an independent check on financials and compliance
• An acquirer negotiating a share purchase or asset purchase agreement
• A company being acquired that needs to prepare its own records ahead of buyer diligence
• A lender assessing a borrower before sanctioning a large credit facility

Eligibility

• Acquirers or investors evaluating a target company before a transaction
• Companies undergoing due diligence themselves as part of an investor or lender requirement
• Businesses evaluating a significant vendor, franchisee or joint venture partner

Documents required

• Audited financial statements for the last 3-5 years and management accounts
• Statutory registers, board/shareholder resolutions and incorporation documents
• Material contracts — customer, vendor, lease, loan and employment agreements
• Tax returns, assessment orders and pending litigation details
• Details of licenses, registrations and regulatory approvals held

Process

1. Scoping — Scope is defined across financial, legal and tax workstreams based on deal size and target sector.
2. Data room review — Documents shared by the target are reviewed against a structured diligence checklist.
3. Query management — Clarification queries are raised with the target and responses reviewed for consistency with disclosed documents.
4. Site/management discussions — Discussions are held with target management/finance team to validate findings and fill documentary gaps.
5. Report finalisation — A consolidated due diligence report with risk ratings and recommended deal protections is delivered.

Government fees

• Government fees: Nil — due diligence is an advisory engagement; only professional fees apply

Professional fee

Starts at ₹24,999 for a focused single-workstream review, scaling with deal size and whether financial, legal and tax diligence are all engaged; covers document review, query resolution and the final report.

Timeline

A standard due diligence exercise for a small to mid-size target takes 14–21 working days from data room access; larger or multi-entity targets with international operations can extend to 30 working days.

Deliverables

• Consolidated due diligence report with findings by risk category
• Red-flag summary with recommended deal protections
• Draft indemnity/condition-precedent clauses for the transaction documents where relevant

Frequently asked questions

How is legal due diligence different from financial due diligence?

Legal due diligence focuses on corporate records, contracts, litigation, licenses and regulatory compliance, while financial due diligence examines the accuracy of financial statements, revenue quality, working capital and liabilities — both are typically run together for a complete risk picture.

What happens if red flags are found during due diligence?

Depending on materiality, red flags are addressed through price adjustment, specific indemnities, escrow arrangements, conditions precedent to closing, or in serious cases, walking away from the deal.

How much access does the target need to give for due diligence?

The target typically provides access through a secure virtual data room to financial, legal, tax and operational documents, often under a confidentiality/non-disclosure agreement executed beforehand.

Common mistakes

• Relying solely on management representations without independently verifying key documents
• Rushing the diligence timeline to meet a deal deadline, missing material issues
• Not covering tax due diligence, missing contingent tax liabilities that transfer with the business
• Failing to translate diligence findings into actual contractual protections in the transaction documents

Penalties for non-compliance

• Undisclosed liabilities not caught in diligence can become the buyer's liability post-completion with no recourse if not backed by indemnity
• Missed regulatory non-compliance at the target can expose the acquirer to penalties as successor-in-interest
• Inadequate tax diligence can result in the acquirer inheriting historical tax demands and interest

Legal references

• Companies Act, 2013 — governs corporate records, resolutions and compliance reviewed in legal due diligence
• Income-tax Act, 1961 — governs tax liabilities and assessments reviewed in tax due diligence
• Competition Act, 2002 — relevant where the transaction requires Competition Commission of India approval
• FEMA, 1999 — relevant where the target has foreign investment or cross-border obligations