Lesson 3: Structure diagrams in due diligence

Before starting due diligence, it can be helpful to familiarize yourself with the corporate structure diagram of the target.

Corporate structure diagrams are important in buy-side legal due diligence for several reasons:

1. Understanding the ownership structure: provide a visual representation of the ownership structure of the target company and its subsidiaries or affiliated entities.

2. Identifying potential liabilities: Identify potential liabilities or risks associated with specific entities within the group. For example, if a subsidiary operates in a high-risk industry or jurisdiction, the buyer can assess the potential impact on the overall transaction.

3. Evaluating legal and tax implications: The corporate structure can have significant legal and tax implications, particularly in cross-border transactions or if the target company has operations in multiple jurisdictions. The diagrams help the buyer's legal and tax advisors analyze the potential legal and tax consequences of the acquisition.

4. Assessing intellectual property ownership: Intellectual property rights, such as patents, trademarks, and copyrights, are often held by different entities within a corporate group. Corporate structure diagrams assist in identifying the ownership and distribution of these valuable assets, which can impact the value of the transaction.

5. Evaluating contractual relationships: Reveal the contractual relationships between entities within the group, including intercompany agreements, licensing arrangements, or revenue-sharing agreements.