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How Businesses in UAE Conduct Due Diligence

When purchasing any business, it’s absolutely crucial that the prospective buyer or business owner, which is you, examines a business that’s in sale in full detail. Assessing a business is referred to as the process of due diligence. It is generally performed following the seller and the buyer agrees on a deal in principle but before a binding, a sale and purchase agreement is signed.

Conducting due diligence in UAE is the most effective and efficient way in assessing a business’s value, as well as the risks which are associated with purchasing the business. Due diligence provides access to critical and confidential details regarding a business, typically within the timeframe that is specified in the letter of intent.

With the information, you’ll be able to assess the financial position of a business and identify all the risks as well as the ongoing potential. It’s the best chance for a buyer to get answers regarding concerns about the business. A due diligence process in UAE can help ensure that you’re getting good value for the purchase of a business. If it is done correctly, it’ll make the difference between purchasing a company that makes a ton of money and purchasing a business that costs you money.

You should always schedule due diligence prior to buying a company with the help of a business adviser and accountant.

Investigating a Business

In order for you to perform due diligence in UAE, you will need to review the following aspects carefully:

Organization

  • The articles of incorporation of the company and all the amendments made to them
  • The by-laws of the company and all the amendments to them
  • The minute book of the company, including the resolutions and minutes of/from directors and shareholders’ meetings
  • Organization chart of the company
  • List of the stakeholders of the company and the number of shares that are held by every board member
  • Copies of the agreements of the company that are related to voting trusts, puts, subscriptions, calls, options, and warrants among others
  • A good standing certificate that is from the local authorities in which the business is under their jurisdiction
  • Active status reports or copies of them in the incorporation jurisdiction for the past three to five years
  • List of the authorities where the company answer to and the areas that the company is doing business in
  • Annual reports for three to five years (up to current)
  • List of countries where the business leases or owns the property and maintains its staff members
  • List of the assumed names of the business and registration certificates

Financial Information

  • Financial statements of the business that have been audited (records for up to five years that come complete with the reports of auditors)
  • Letters and replies of the auditor for the previous five years
  • Most recent statements that have not been officially audited with comparable statements that are from the prior year
  • Credit report of the business, if available
  • Analyst reports, only if applicable and available
  • Any strategic plans, capital budgets and/or projections for the business
  • Schedule of the business inventory
  • The Schedule of contingent liabilities and indebtedness
  • Schedule of the business’ accounts receivable
  • The business’ accounts payable Schedule  
  • Analysis of variable and fixed expenses
  • Analysis of any gross margin
  • General ledger of the business
  • Description of amortization and depreciation methods and changes with accounting periods from the past three to five years
  • Internal control procedures and their descriptions

Physical Assets

  • Schedule of the company’s fixed assets, as well as their locations
  • Leases of company equipment
  • Schedule of purchase and sales of capital equipment form the past three to five years

Real Estate

  • Schedule of the business locations of the company
  • Original or copies of real estate or property deeds, leases, title policies, zoning approvals, permits, and mortgages

Intellectual Property

  • Schedule of the business’ copyrights
  •  The Schedule of the business’ trade names and trademarks
  • A Schedule of the foreign and local patent applications and patents of the business
  • All agreements for ‘work for hire’
  • Description of the methods stat are utilized in protecting knowhow or trade secrets
  • Description of all crucial technical knowledge
  • Summary and schedule of threatened claims and claims that are against or by the business regarding (IP) intellectual property
  • Any document on patent clearance
  • Copies and schedule of agreements for consulting, licenses or assignments for intellectual property from or to the business, and contracts regarding inventions

Employees

  • List of the employees including their current wages and titles (for salaries, there should be a list of the ones that are paid form the past three to five years including a list of their years of service)
  • Resumes of all the key staff members
  • Nondisclosure, noncompetition or consulting agreements that are between the business and its staff members

There are so many aspects that have to be carefully reviewed with due diligence in UAE. If you want to know more, contact  Farahat & Co!