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1、How to Write a Due Diligence Report for Investment Purposes TheThe MostMost PopularPopular DraftingDrafting ModelModel forfor MemosMemos andand DDDD ReportReport In the United States legal education or practices IRAC structure is the most used writing process for each and every legal document It is
2、efficient and very easily to be grasped I issue R rules and cases background A analysis C conclusion We can compare this structure with our Chinese s classical writing methods qi 起 cheng 承 zhuan 转 and he 合 2 144 TheThe InvestmentInvestment ModelModel An international investorinvestor wishes to put s
3、ome capital money into a domestic company we call it a targettarget companycompany and after the target company earns enough profits for instance the company can make an IPO in China securities market then the investor may withdraw it investment plus the premium interests or profits from the company
4、 by transferring the shares it has in the target company It should be noted that in this process the investor shall deal with the shareholders of the target company At current China financial market probably all the shareholders wish to go to the public market to attract more investment so dealing w
5、ith these shareholders 3 144 is not a major problem The major problem is how to avoid the legal and the financial risks in the investment What if the investment has some legal obstacles that prohibit it from withdrawal This is the key issue and the most important concern in the DD Report DefinitionD
6、efinition A due diligence report also called DD Report is a widely used legal document in today s legal practice Especially in international investment activities DD Report can help the investor to make the right decision for its investment strategies What is a DD Report We can define the legal docu
7、ment as 4 144 the key and basic information about a target company s finance and management The information can show the risks or the benefits for the investments Before taking any actions a rational investor of course including all the experienced ones generally will retain a law firm or an account
8、ing firm to do the report We can compare a DD Report with your personal diary I write all the activities I did in one day into my diary and for most of times I only give a short summary of the most important things I had in this day For instance I do not write what I eat in a common day in my diary
9、but I will describe one dish in detail if I attend my friend s marriage ceremony if this dish impressed me so well I mean whether it 5 144 is very delicious or it is very badly tasted The reason is simple it gives me some unusual experience pleasant or unpleasant A DD Report shows us what we read an
10、d examined in the documents coming from the target company We write what we saw in these documents and report them to our clients just as we write what we experience in one day for our diary Of course since the documents are so big and we generally have to make most summaries for our writings Occasi
11、onally we just translate some of the key documents from Chinese into English and put them into our report Because I am a legal practitioner I will explain the DD 6 144 Report from a legal point of view As a result the DD Report for my client must show the most important investment risks StepsSteps t
12、oto DoDo thethe DDDD ReportReport Generally if we wish to have a complete DD Report the following four steps have to be followed And a moderate DD Report usually will take us two to three weeks to finish Step One Collect All the Information from the Target Company At this step we shall produce a Doc
13、umentation Request List and ask the relevant legal documents from the company I give you such an example as an attachment one Let us go 7 144 through the list very quickly I am sure that after you have finished reading of this list you can get a rough impression on a target company s structure and m
14、anagement system Step Two Review the Documents and Produce a Question List At this stage we shall carefully read word by word number by number date by date figure by figure every of the delivered documents from the company and ask questions in detail about the legality and clearness for them For exa
15、mple if we see somewhere in one document is unclear because of the printing process and then we shall request another clear copy of this document The other example if we miss one page of a contract then we shall ask for the 8 144 missing one from the company Another example if one certificate needs
16、to be annually registered and it is not for the past year then we should ask when the certificate will be registered or examined this year Kindly remind the company to deliver the missing documents in a reasonable time This process is very time consuming We shall keep alert on every suspicious point in the documents Step Three Onsite Interview with the Officers of the Company If the documents are complete and very sound I mean they can answer every question or solve the legal issues for the inve
