Undoubtedly, one of the most relevant series in 2023 is Succession. The premiere of the 4th and final season of the story of the dysfunctional Roy family (Spoiler alert!) finds them negotiating the sale of their conglomerate to the tech entrepreneur Lukas Mattson. Throughout the episodes, it becomes evident how complex this process of due diligence can be, where a balance must be struck between valuing the company’s assets while remaining truthful, as any misrepresentation could invalidate the entire transaction for the shareholders.

Beyond fiction, in recent times, several cases have made headlines in the business world with serious irregularities regarding the information shared with investors and acquiring companies. Two of the most resonant cases were JP Morgan’s acquisition of the company Frank, where subsequent discovery of fraud in the reported client base led to issues, and the lack of investigation supporting the claims of Elizabeth Anne Holmes’ Theranos device, which purportedly detected “295 diseases with a drop of blood.”

It happens in fiction, it happens in real life; when analyzing a merger or acquisition, it is necessary to properly conduct the due diligence process to avoid future inconveniences. This process involves a thorough and detailed investigation of the target company to assess its financial, legal, and operational situation. Below, we describe the procedures that must be carried out to accomplish this in Costa Rica:

Ministry of Finance:

• Review of tax debts: Verify if the company has any outstanding debts with the tax authorities, such as Corporate Tax or other related taxes.
• Registered legal representatives: Confirm that the company has its legal representatives duly registered and authorized to act on behalf of the company.
• Declaration of Transparency Registry and Final Beneficiaries: Ensure that the company has submitted the required declaration to comply with regulations on transparency and disclosure of information about final beneficiaries of the company.

Municipalities:

• Verification of municipal obligations: Ensure that the company is up-to-date with the payment of taxes and other local obligations with the corresponding municipality.

National Registry:

• Review of movable and immovable property: Confirm ownership and title of the company’s assets, such as land, buildings, machinery, etc.
• Patents and trademarks: Check if the company has registered patents or trademarks relevant to its business.

Judicial Authority:

• Review of legal proceedings: Investigate if the company is involved in litigation or legal processes that could have a significant impact on its financial situation or reputation.

Constitutive Pact:

• Obtain copies of the constitutive pact: Analyze the company’s constitutive pact to understand the agreements and conditions under which it was founded and operates.

Legal Books:

• Review of legal books: It is of utmost importance to review the company’s legal books to verify its business transactions and ensure they align with the intended purchase.

Conducting a comprehensive due diligence is essential to assess the risks and opportunities associated with purchasing a company.

At ERP Lawyers, we have a team of professionals with extensive experience in these processes, supporting our clients as allies by providing them with the necessary information throughout the entire course of the process.