Georgia is recognised as one of the world’s most business-friendly country. With minimal bureaucracy and no restrictions on foreign ownership, it offers an ideal environment for entrepreneurs and investors. Positioned strategically between Europe and Asia, Georgia serves as a gateway to both markets, making it a prime location for business ventures. Its excellent transport infrastructure and status as a crucial energy corridor with oil pipelines connecting Asia to Europe further enhance its appeal. As a result, there’s a growing interest in exploring various business opportunities in the country.

Moreover, Georgia’s participation in the European Union’s Free Trade Area and its 7th rank in the World Bank’s Ease of Doing Business index further solidify its reputation as a business-friendly destination. This reputation enhances its appeal to investors and businesses, attracting those seeking favourable conditions for their ventures.

In this context, due diligence plays a crucial role. It involves investigating and verifying information about a company or investment opportunity, particularly relevant for compliance teams evaluating relationships with new vendors and third parties. However, understanding and effectively implementing due diligence can be challenging. In this article, we will explore the definition of due diligence, its different types, and how this process applies in Georgia.

What is due diligence?

Due Diligence is a procedure of drawing up an unbiased presentation of an investment object, which includes an independent assessment of the given assets or property, a comprehensive study of the company’s activities and an assessment of investment risks, a complete examination of its financial condition and position in the market.  In Georgia, while there’s no legal requirement for it, understanding this process is important. Unlike in the US, where buyers typically inspect purchases (Caveat Emptor), Georgia follows Caveat Vendor, placing responsibility on sellers for any defects. This principle is legally enforced in Georgia’s Civil Code, making sellers accountable for providing flawless items.

Determining the Timing for Due Diligence

Due diligence is typically conducted preceding any business transaction. The extent of due diligence required increases with the size and complexity of the deal. It can occur at various stages of the decision-making process, ranging from pre-transaction to actual risk management. As a standard practice, due diligence should be completed before finalising the deal.

Types of due diligence

Due Diligence can vary in scope and direction. Therefore, it’s essential to clarify the information the enterprise intends to provide, what authorised persons can disclose, and the buyer’s requirements and obligations before taking concrete steps. Besides legal or contractual obligations, information disclosure also relies on trust. In modern transactions, The most commonly used types of due diligence are described below:

• Legal Due Diligence: this type focuses on understanding and assessing the legal aspects of the target entity. It involves examining documents such as founding agreements, statutes, contracts, lease agreements, and more. Legal due diligence also looks into potential disputes, licenses, environmental obligations, and the structure of subsidiary enterprises. Additionally, it examines the legal framework surrounding the target entity to identify risks and ensure compliance with laws and regulations.
• Financial Due Diligence: the aim of this type is to evaluate the financial health and performance of the target entity. It involves analysing financial statements, accounting practices, cash flow, credit history, and past transactions. Financial due diligence helps identify financial risks, assess the company’s profitability, and understand its financial stability over time. It also ensures that the financial information presented is accurate and reliable.
• Commercial Due Diligence: this type focuses on studying the target entity’s market viability and competitiveness. It examines market trends, customer preferences, product offerings, and competitive landscape. Commercial due diligence helps assess the target entity’s position in the market and identifies potential growth opportunities or risks. It also evaluates the target entity’s business model and strategic fit within the market.
• Tax Due Diligence: tax due diligence aims to identify potential tax risks and obligations associated with the target entity. It involves reviewing tax records, assessing tax compliance, and identifying any tax liabilities or benefits. Tax due diligence also evaluates the tax implications of the transaction for both the buyer and the seller. It ensures that the transaction is structured in a tax-efficient manner and minimises any potential tax risks or exposures.

Expert Due Diligence Services: How Our Company Can Assist You

Due diligence is a critical aspect of any business transaction, ensuring that all parties involved have a thorough understanding of the risks and opportunities associated with the deal. At Legalese Georgia, we recognize the significance of due diligence and offer comprehensive services to support our clients throughout the process.

Our company provides tailored due diligence solutions designed to meet the unique needs of each client. Whether it’s legal, financial, commercial, or tax due diligence, our team of experts conducts thorough assessments to uncover potential risks and opportunities, enabling our clients to make informed decisions. With our expertise and attention to detail, we help businesses navigate the complexities of due diligence, identifying areas of concern and providing valuable insights to mitigate risks. Our goal is to empower our clients with the information they need to succeed in their business endeavours.

By partnering with Legalese Georgia, businesses can trust that their due diligence needs are in capable hands. We are committed to delivering high-quality, reliable services that add value to every transaction. For assistance with your due diligence needs, please contact us directly at +995 591 797 797 or via email at info@legalese.ge.

Leave your request