Conduct due diligence in Chile before purchasing an existing company, partnering with an unfamiliar organization, buying assets or hiring staff.
As the term due diligence suggests, it is about acquiring all legal information about the target to avoid issues after the transaction. This could involve collecting information about a company, property, or individual’s criminal record history. Due diligence provides you with information, and the right information eventually reduces the risk of your investment in Chile.
What is due diligence in Chile?
Due diligence is a thorough scan of data to get information. Due diligence processes may involve companies, purchase of assets, human resources, or the state of operations (e.g. business in other countries). Due diligence provides you with all the necessary information you need to know in order to make informed decisions with calculated risks. It is important to take necessary precautions to protect your company through adequate risk management.
When expanding into a new market, such as Chile, you may have some questions about building connections in the country, including:
- Can I trust my joint venture partners and my distributors?
- Who can I trust to be my local representative?
- Are there any inherent risks that I need to know about?
Challenges for businesses in Chile
Culturally and commercially, there are specific aspects that could make it more challenging for foreigners to do business in Chile.
Common challenges for foreign businesses in Chile include:
- Legal framework changes constantly
- Taxes change almost yearly
- Spanish is the most widely used language in business
- Deadlines can be difficult to keep track of.
Why is due diligence necessary?
Issues with transparency and language barriers for communication results in challenges for businesses in Chile. Through proper due diligence processes, you acquire knowledge about elements crucial for your business and learn about legal requirements and risks in your new market.
The goal of due diligence is to:
- Gain information about the value of the purchase
- Assess synergies
- Analyze potential problems during or after the buying process
Next to that, note that it is difficult to enter the Chilean market without a direct presence or a local partner.
Consulting a legal expert to conduct due diligence in Chile offers many advantages. A due diligence service provider in Chile gives your business access to key information and local expertise and insight you may not necessarily obtain as a foreign company.
The due diligence process for buying a company
Due diligence is usually the first step in the process for buying a company. The due diligence process in Chile for buying companies typically includes:
- Finding a trustworthy local agency
- Arranging a confidentiality agreement: it specifies the information both parties are willing to share
- Arranging a letter of intent (Carta de Intención): specify the timeframe and conditions of the due diligence process.
You must also assess the conditions of the target, which include, but are not limited to:
- Financials (e.g. financial statements, liabilities and debts)
- Agreements, partnerships or joint ventures
- Assets such as properties, or trademarks
- Labor agreements
- Insurance matters
- Internal matters (e.g. by-laws, shareholders agreements, organizational charts)
- Water rights.
Water rights: In Chile, the DGA (Direccion General de Aguas) is the pertinent entity that controls the water systems. In Chile, “Water Rights” are granted, meaning that authorization from the DGA is needed to retrieve and use water. Thus, water rights (or water concessions/permissions) can be the object of due diligence in the same way that a house, a company, or a mining right can.
How can a local provider undertake due diligence on your behalf?
To find information on the above aspects, a lawyer may:
- Meet with management and accountants, customers or suppliers
- General visits to object being sold
- Research the industry and compare the target to other offers of purchase
- Access third party reports.
During the due diligence process, providers are looking to understand:
- How much the purchase is worth compared with the industry
- The seller’s warranties and indemnities
- Legal risks and complications.
Due diligence is completed by an assessment of the lawyer on behalf of the buyer. This assessment points out issues of concern and the degree of risks linked to the target. Based on this, both parties can then negotiate warranties and conditions of purchase.
Ultimately, by conducting due diligence in Chile, you reduce risks and protect your company from non-compliance and malpractice.
During the process, you will also gain a thorough understanding of the purchase you are making, and as a result, make informed decisions about your business venture.
Contact legal experts to conduct due diligence in Chile
Local lawyers principally practice due diligence in Chile for companies. During the process, a lawyer develops an exceptional understanding of the target. Make sure to engage with a trusted local provider who can support your business to bridge linguistic and commercial gaps in understanding, and ensure the best outcome.
At Biz Latin Hub, we offer key background assessments of people and companies, reviews of company operations and structure, legal and accounting due diligence, and valuation due diligence. We work to secure your business against unnecessary risk and support your success.
Our lawyers and accountants speak English and Spanish, so get in touch with us today.
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