1. Due Diligence and Corporate Compliance Management

4. Meaning of Due Diligence 4 Thereisnolegaldefinitionofthe term "due diligence". Simply put it is a detailed investigation of the affairs of a company.

5. Meaning of Due Diligence 5 It is the process of carrying out an investigative analysis of the financial, legal and operating activities of an entity in connection with a proposed transaction that would result in a significant change in the ownership or the capital structure of the entity.

6. Aim of the Due Diligence Process 6 Identify problems within the business, particularly any issues which may give rise to unexpected liabilities in the future.

7. Ingredients of a successful Due Diligence 7 Must be unbiased Shouldbecarriedoutby independent professionals. Requires the management’s co-operation Done with a positive attitude

8. Purposeof Due Diligence 8 Assessthereasonablenessofhistorical and projected earnings and cash flows; Identifykeyvulnerabilities,risksand opportunities; Understandingthecompanyandits market

9. Purposeof Due Diligence 9 4.Settinginmotionplanningforpost-IPO operations company’stax,legal,corporate Highlightchangesrequiredinthe or shareholding structures Checkwhether theCompanyhas complied with all the laws

10. Needfor DueDiligence in IPO’s 10 Going public increases the number of shareholders. Board performance subject to closer scrutiny. Institutional investors look for increases in share prices,achievement of profit targets and dividend pay-outs.

11. Needfor DueDiligence in IPO’s 11 Investors require assurance of a system of strategic planning and budgeting,financial reporting and management information The SEBI disclosure requirements are met through the due diligence process

12. Key Areas of Focus 12 Financial statements – to ensure their accuracy Assets - confirm their value, condition existence and legal title Employees – identification and evaluation of the key movers Salesstrategy–analyzingthepoliciesand procedures in place

13. Key Areas of Focus 13 Marketing – what is driving the businessand is it effective? Industryinwhichthecompanyoperates– understand trends and new technologies Competition – identify the threats Systems–howefficientarethey?Are upgrades required?

14. Key Areas of Focus 14 Legal and corporate and tax issues – is the shareholding structure robust? Are there any tax issues which need to be resolved? Contracts and leases – identify what the risks and obligations are; Suppliers – are they expected to remain around? Intellectual Property - protected and to what extent?

15. Legal Issues 15 1.Licenses and Permissions 2.Litigation 3.Real Estate and Moveable Property 4.Company Law 5.Employees, Consultants, Labour Relations 6.Environmental Permissions

16. Gap Analysis 16 The due diligence helps identify areas where the company exhibits weaknesses Eg:Itmayhighlight company’smanagement deficiencies structure inthe oran inefficient tax structure. Therefore pre-IPO due diligence process will result in a gap analysis between the present status of the company and the company that should be floated.

17. Fillinginthe Gaps Gaps identified assist the directors in:  divesting of non-core, non-profitable activities.  criticalanalysisofthecontrol,accounting and reporting systems  critical appraisal of key personnel.  identify the value drivers of the company 17

18. Consequences of Misrepresentation inOffer Documents 18 Civil liability under S. 62 of the Companies Act, 1956 for misstatements. Liability is in the form of compensation to any person who has sustained loss or damage due to such misstatement.

19. Persons liable under S. 62 19 Every director holding office Every person named in the offer document as a director or a proposed director Every promoter of the Company Everyotherpersonwhohas authorized the issue of the prospectus

20. Criminal Liability 20 S.63 of the Companies Act, 1956 provides for punishment in the form of imprisonment and fine upto Rs. 50, 000/- for any untrue statement.

21. Persons Liable under S.63 21 Anypersonwhohasauthorizedtheissueof the prospectus except: An expert who has given his consent to have his statement recorded in the prospectus Auditor, legal advisor, attorney, solicitor, banker or broker who has given his consent to include his name in the offer document in any capacity.

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23. THANK YOU 23

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