GuidesLegalDennis Raisich
Legal due diligence
Legal due diligence reviews a company’s legal position before the purchase: who owns it, which contracts bind it and which disputes and obligations exist. The result shows which risks the buyer takes on and how the purchase agreement should cushion them.
In short
- The review covers corporate matters, contracts, employment, real estate, intellectual property, data protection, disputes and permits.
- The most common surprises are change of control clauses in important contracts.
- The findings end up in the purchase agreement: as a warranty, an indemnity, a condition for closing or a price adjustment.
- Reading the contracts takes the most effort, and that is exactly where AI helps.
What does legal due diligence review?
| Area | Typical documents | What to look for |
|---|---|---|
| Corporate | Commercial register extract, articles of association, share register or list of shareholders, minutes, shareholders’ agreement | Who owns the shares? Are there rights of first refusal, transfer restrictions or pledges? |
| Contracts | Customer, supplier, framework, license and loan agreements | Change of control, termination, exclusivity, non-compete clauses, liability |
| Employment | Employment contracts, staff regulations, pension arrangements, bonus plans | Key people, notice periods, non-compete clauses, financial position of the pension fund |
| Real estate | Leases and purchase agreements, land register extracts | Term, options, termination on a change of ownership |
| Intellectual property and IT | Trademarks, patents, software licenses, contracts with developers | Do the code, trademarks and data really belong to the company? |
| Data protection | Record of processing activities, data processing agreements, privacy policy | Compliance with the FADP (Switzerland) and the GDPR (EU) |
| Disputes and authorities | Lawsuits, debt collection proceedings, permits, correspondence with authorities | Pending proceedings, threatened claims, missing permits |
The due diligence checklist shows in detail which documents to request.
Change of control: the clause that most often comes as a surprise
Many contracts allow the other party to terminate or renegotiate on a change of ownership. If this affects a major customer, an important supplier, the bank or the landlord, part of the business is at stake. Whether a clause applies depends on its wording: some are triggered by any change in majority ownership, others only by a sale to a competitor.
The clause alone is rarely the problem. It gets tricky when the plan still carries the affected revenue forward in full. That is why cross-checking contracts against the numbers is part of legal due diligence.
Share deal or asset deal: what changes?
In a share deal, the buyer acquires the shares. The company stays the same, with all its contracts, rights and obligations, including the unknown ones. The review must therefore also cover the past. In an asset deal, the buyer acquires individual assets and contracts. Contracts don’t transfer automatically; the other party’s consent is often required. Employment relationships, on the other hand, transfer by law when a business is taken over, unless the employees object: in Switzerland under Art. 333 of the Swiss Code of Obligations (CO), in Germany under Section 613a of the German Civil Code (BGB).
What does the result look like?
The review ends with a report. A red flag due diligence names only the material risks, while a full report describes every area. Each finding states the facts, the source, what it means for the deal and a recommendation. Typical recommendations are:
- a warranty from the seller in the purchase agreement,
- an indemnity for a known risk,
- a condition for closing, such as the consent of an important customer,
- an adjustment to the purchase price or a holdback.
Our guide to the due diligence report shows how such a report is structured.
Legal due diligence with AI
Reading the contracts takes up most of the time. majiq moves every contract into the table for its area, with the key details in columns. If you ask all contracts one question, majiq answers with the source in each document. majiq also cross-checks the contracts against the financial statements and the plan and shows dependencies, for example on a key customer, a bank or a landlord. More on this in AI in due diligence.
Frequently asked questions
Who carries out legal due diligence?
Usually lawyers, and for larger deals specialized M&A teams at law firms. The buyer engages them, or the seller in a vendor due diligence.
How long does legal due diligence take?
Usually a few weeks. The deciding factors are the number of contracts and companies, how well organized the data room is and how quickly the seller answers questions.
What is a red flag due diligence?
A shortened review that only reports the material risks, known as red flags. It is faster and cheaper than a full report and suits early stages or smaller deals.
Read next
Also read: Due Diligence Software and Due Diligence with AI Switzerland.
As of November 5, 2026. This article is a general overview and does not replace legal advice on a specific case.