Due diligence report sample

Due diligence means doing what should be done within the scope of responsibilities. Below is a sample due diligence report I compiled, welcome to read!

[Part 1: Due Diligence Report on a Limited Company]

Limited Company:

Shanghai xx Law Firm accepted your company’s entrustment and assigned Chinese practicing lawyers XX and XX to conduct due diligence on a limited company (hereinafter referred to as “Company W”).

In multiple rounds of negotiations with your company, we and your company have determined the scope of this due diligence investigation, and it has been determined in the form of an (see Appendix 1: Due Diligence Investigation for details) scope).

According to the scope of work of this case, this due diligence work adopts careful reading of the documents provided by w company (for details, see Appendix 2: directory of documents provided by w), conducting written review; talking to the relevant person in charge of w company, By obtaining information from the China Administration for Industry and Commerce, etc., while providing this due diligence report, we have received the following commitments:

1. All signatures, seals and The official seal is authentic; the originals of all documents submitted to us are recognized and complete; and all copies are consistent with the originals;

2. All documents we reviewed The factual statements are all true and correct;

3. The content stated by the relevant person in charge who accepted our conversation does not contain any falsehoods or omissions, and is objective and true;

4 , W Company has no undisclosed external mortgages, guarantees and other guarantees;

5. At the same time, we have not received any hint that the above commitment is illegal.

Based on the above commitments and the materials and information we have collected, based on the currently effective Chinese laws, regulations and policies, based on the documents provided by W Company, and based on the work experience of our assigned lawyers, we have made the following due diligence Contents of the investigation report:

1. Basic information of w company

1. Basic information (omitted)

2. Previous changes of w company (omitted)

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(For details, see Appendix 3: Details of changes in company w)

3. Actual controller of company w (omitted)

2. Risks of anonymous investment in company w

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The investment by a foreigner in Company W through a Chinese natural person is an anonymous investment. Due Diligence Report. The foreigner XX is the "hidden shareholder" and the Chinese natural person is the "disclosed shareholder".

1. Chinese laws and judicial practices regarding anonymous investments

According to Chinese laws and judicial practices, if an anonymous investment behavior wants to be recognized by law, it must meet the following conditions:

(1) Hidden shareholders must actually contribute capital. Specifically, the dormant shareholder has evidence to prove that the property invested by the prominent shareholder in the company belongs to the dormant shareholder;

(2) More than half of the other shareholders of the company are aware of it. The above here includes half;

(3) The dormant shareholders exercise their rights as actual shareholders and are recognized by the company. Here, the exercise of rights as a shareholder is recognized by the company, which can be reflected in the fact that the dormant shareholder actually serves as a director and actually performs management functions; the company's shareholder list and other legal documents record the actual shareholder identity of the dormant shareholder , it can also be shown that the decisions of the prominent shareholders have been approved or approved by the dormant shareholders.

(4) Does not violate the mandatory provisions of laws and regulations. For example, foreign investors' behavior of avoiding market access by making anonymous investments also violates the mandatory provisions of Chinese law. Due Diligence Report.

2. Chinese law’s access regulations for foreign investment industries

According to the "Regulations on the Direction of Guiding Foreign Investment" and the "Guidance Catalog of Foreign Investment Industries", China divides the industries for foreign investment into For the encouraged category, allowed category, restricted category and prohibited category.

Foreign-invested enterprises in the trade category are included in the "restricted category" for special management because they belong to the gradually opening industries stipulated by the government.

3. Legal risks of w company’s anonymous investment

(1) Chinese law determines the identity of shareholders through registration procedures. Registration here refers to registration with the China Industrial and Commercial Administration An agency that has not been registered cannot fight against a third party who is unaware of anonymous investment activities. In other words, at present, the foreigner XX is not a shareholder registered with the relevant Chinese government departments, but the registered shareholder is a Chinese natural person;

(2) A Chinese natural person who actually controls the equity of w company Rights, if the prominent shareholder transfers the equity without the consent of the dormant shareholder, the investment of the dormant shareholder will fail;

(3) When the prominent shareholder personally has a large debt and cannot repay it , their creditors may demand shares of company w, thus affecting the interests of anonymous shareholders;

(4) China currently has no effective legal protection for anonymous investments. In judicial practice, it is generally believed that if foreign investors invest anonymously in restricted or prohibited industries, the court will rule that such anonymous investment is invalid, and the real shareholders are apparent investors. The capital contribution of shareholders (Chinese natural persons and legal persons) forms a creditor-debt relationship; w company’s current main business scope is restricted, so if a foreigner’s anonymous investment behavior causes a dispute with a prominent shareholder, the court will rule against the foreigner’s The anonymous investment behavior of a certain person is invalid, and the foreigner XX will lose control of company w;

(5) According to our experience in handling similar cases, foreign businessmen use Chinese people to make anonymous investments, and initially Generally speaking, cooperation is good, but when the company becomes bigger and stronger and generates larger profits, the prominent shareholders (Chinese natural persons or legal persons) will often make various demands to the dormant shareholders (foreign investors), resulting in disputes.

3. Regarding the business scope of Company W

The goal of this due diligence investigation is to achieve the merger, acquisition and capital increase of Company W. After the capital increase, Company W will be changed into a foreign-invested enterprise. . Since China implements an access system for foreign-invested enterprise investments and industries, it is difficult to retain some business scope of Company W.

According to the provisions of Chinese law and our experience, the business scope of the changed w company will be stated as: engaging in the import and export business of... and other food products, domestic wholesale and related supporting businesses.

IV. w Company’s financial accounting system

1. Overview

w Company’s accounting in principle follows China’s current . However, a corporate accounting system suitable for the specific circumstances of the company has not been formulated in accordance with the relevant provisions of the system; the accounting system is a mandatory system recommended by Chinese law, while the financial management regulations are an internal control system or management system.

Since W Company does not have a corporate accounting system that is specifically suitable for the company's actual situation, the relevant accounting policies cannot be determined (currently determined by financial personnel based on experience or habits), which is not conducive to the company's management's accounting. Effective management can easily lead to randomness in W company's accounting business processing.

We recommend that Company W develop an "Accounting System" that suits the company's specific circumstances in accordance with the relevant regulations of China's current "Accounting System for Small Businesses".

2. Accounting policies of w company

(1) Implement China's "Small Business Accounting System";

According to Chinese laws and regulations, according to the size of w company , you can use the or the . Company w currently implements the .

(2)Accounting period: January 1st to xx31st of the Gregorian calendar;

(3)Accounting standard currency and foreign currency accounting method:

The functional currency for accounting is RMB;

Foreign currency business is converted into RMB for accounting based on the central parity rate announced by the China Administration of Foreign Exchange when the business occurs; the balance of the foreign currency account at the end of the period (including the end of the month, the end of the quarter and the end of the year) The amount converted into RMB has not been adjusted according to the central parity rate of the exchange rate announced by the China Administration of Foreign Exchange at the end of the period. The relevant exchange gains and losses will be adjusted one-time when the actual payment and settlement in foreign currency is made.

We believe that the foreign currency accounts were not converted into the accounting currency (RMB) at the end of the period, and the exchange gains and losses caused by exchange rate changes were not accounted for in a timely manner, which is not in compliance with the relevant provisions of the "Accounting System for Small Enterprises" , will also lead to untrue accounting profit calculations.

We suggest that Company W should make timely adjustments to the exchange gains and losses of each foreign currency account at the end of the period (including the end of the month, the end of the quarter, and the end of the year) in accordance with the relevant provisions of the "Small Business Accounting System" to ensure the legitimacy of the accounting information. Authenticity.

(4) Accounting basis and pricing principle: The accrual basis is the accounting basis, and historical cost (actual acquisition price) is the pricing principle. < /p>

② Amortization method for low-value consumables: adopt one-time amortization method;

③ Inventory inventory system: adopt perpetual inventory system, that is, based on book data and actual inventory data Combined with confirmation methods.

(6) Valuation method, depreciation method and estimated service life of fixed assets

Fixed assets refer to those held for operation and management, with a service life of more than one year and a relatively large unit value. high assets. Fixed assets are valued at actual acquisition cost when acquired, and depreciation is calculated based on the average life method.

(7) Revenue recognition principle:

①Sales of goods: The company has transferred the ownership of the goods to the buyer;

②The company will no longer implement the product With continued management rights and actual control, the economic benefits related to the transaction can flow into the enterprise;

③ When the relevant income and costs can be measured reliably, the realization of operating income is recognized.

Risk warning: w Company’s actual sales revenue recognition method is different from the above principles. For details, please refer to the tax risk investigation section of this report.

5. Survey on the financial status of W Company (as of the end of October 20xx)

1. Accounting statements

(1) Balance sheet (date: 20xx October 31, 2020; currency unit: RMB, Yuan)

(omitted)

(2) Profit and loss statement (period: January to October 20xx; currency unit: RMB , Yuan)

(Omitted)

(3) Accounting statement reminder:

(Omitted)

2. Related assets and liabilities Investigation and analysis of the project (omitted)

6. Tax risks

1. Company w has tax risks caused by delayed recognition of sales revenue, which violates China’s current growth regulations and Corporate income tax and other relevant regulations;

(1) In the company's current sales revenue accounting business, the goods sold in the month,

① Before September 20xx, all goods sold in the month Generally, the additional invoice is issued and the sales revenue is confirmed around the 10th of the following month;

②For the sales of goods after September 20xx (inclusive), the sales of goods after the 25th of the month are generally in The invoice will be issued and the sales revenue will be confirmed around the 10th of the following month;

(2) According to Article 19 of the "People's Republic of China and the State Council", and the "People's Republic of China and the People's Republic of China" According to the relevant provisions of Article 38 of the State Administration of Taxation, the time when tax liability occurs and goods are sold on credit shall be the day on which the payment date is stipulated in the written contract. If there is no written contract or the written contract does not stipulate the payment date ( w Company currently does not have a written contract for this type of business) (see explanation of contract risk clauses of w Company in Part IV of this report), is the day when the goods are shipped;

In addition, according to the "State Administration of Taxation's Recognition of Corporate Income Tax Income" Notice on Several Issues> (Guo Shui Han [2008] No. 875) According to the relevant provisions of Article 1, paragraph (1), if an enterprise sells goods that meet the following four conditions at the same time, the realization of revenue shall be recognized:

① The goods sales contract has been signed, and the enterprise has transferred the main risks and rewards related to the ownership of the goods to the buyer;

② The enterprise has neither retained the continued management of the sold goods that is usually associated with ownership.

③The amount of income can be measured reliably;

④The costs of the seller that have been incurred or will be incurred can be reliably accounted for.

(3) We believe that, in accordance with the above tax regulations, the recognition of company w’s merchandise sales revenue is delayed recognition, and there may be tax risks (i.e. delayed declaration of tax);

2. In addition to the above risks, we have not identified other tax risks.

VII. Description of this due diligence report

1. This due diligence report is only an investigation conducted within a limited time, using limited means, and based on the particularity of this case. . Therefore, the content of our due diligence report cannot exhaust the current contingent risks of Company W. There may be misdescriptions, deviations or omissions of contingent risks, which are specifically explained and please pay full attention to them.

2. The content of this due diligence report involves legal, financial, and accounting professional knowledge and professional experience. Although we have Chinese practicing lawyers participating in this case and responsible for the investigation, we have conducted comprehensive audits, evaluations and multiple audits with accounting firms. The results of the collaborative work of CPAs are different. Some issues, such as adjustments to financial statements and overall company valuation, are the responsibility of asset valuation and auditors and are not covered in this report.

3. All attachments to this due diligence report form a complete document with this report and cannot be quoted, used or understood individually or separately.

4. This due diligence report is based on the "Service Entrustment Contract" signed between your company and us.

This due diligence report shall not be used for any other purpose except for the client’s use as a transferee of W Company’s equity or as a reference for W Company’s capital increase.

Shanghai xx Law Firm

××Lawyer

××Lawyer

November 18, 20xx