Legal due diligence for acquisitions, investments and financings in Chile by Anguita Osorio.
Corporate, contracts, labor, regulatory, litigation, data and criminal-compliance review translated into deal terms.
Legal due diligence: what it reviews and how it shapes the deal
Nobody buys a company; everybody buys the version of it the documents show. Due diligence closes the distance between the two before the price does: it turns unknown risks into identified contingencies, and identified contingencies into price adjustments, warranties and indemnities.
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This page covers what legal due diligence is and when to run it, the areas a serious review examines, the red flags that appear most often in Chilean targets, and how findings travel into the purchase agreement. It is written for buyers, sellers preparing a sale and investors entering a company.
The areas a serious review examines
Titles, minutes and agreements
Chain of title over the shares, corporate books, powers of attorney, and shareholder agreements with change-of-control or first-refusal clauses that can block the deal itself.
The revenue that survives closing
Material customer and supplier contracts, exclusivities, change-of-control triggers and termination rights: whether the revenue being bought still exists the day after closing.
People and permits
Employment structure and contingencies, social-security compliance, and the permits and registrations that sustain the operation, from sector regulators to municipal licenses.
Litigation, data and criminal risk
Pending and threatened litigation, tax positions, data-protection and cybersecurity posture, and the crime prevention model: liabilities that follow the company across the closing.
From findings to deal terms
A due diligence report is only as useful as its consequences. Each material finding should land in one of five places: the price (adjustment or holdback), the representations and warranties, a specific indemnity, a condition precedent, or the decision to walk away. The discipline of mapping every finding to a treatment is what separates a review that protects the buyer from a review that merely documents the risk it accepted.
Two areas deserve their own pages: the shareholders agreement that will govern the partners after closing, and the criminal liability that transfers in mergers and divisions after Law 21.595.
The red flags that repeat
- Broken share-title chains: transfers never registered, spousal authorizations missing, options never formalized.
- Key contracts with change-of-control clauses nobody read before signing the LOI.
- Informal labor arrangements (fees instead of payroll, unrecorded overtime) that convert into contingencies at closing scale.
- Personal data processed with no lawful basis and no security measures, weeks before Law 21.719 becomes enforceable.
- No crime prevention model, or one that predates Law 21.595 and covers a fraction of the current offense catalog.
Frequently asked questions
What is legal due diligence?
The systematic review of a company's legal situation before a transaction: who really owns what, which contracts and contingencies exist, which permits sustain the business and which liabilities would surface after closing. Its product is a report that identifies risks, quantifies them where possible and recommends how to treat them in the contract.
When is legal due diligence performed?
Before committing the price: in company and asset purchases, mergers, investment rounds, new-partner entries and significant financings. The buyer runs it to know what it is buying; the serious seller runs it earlier (vendor due diligence) to put the house in order and avoid surprises that cut the price mid-negotiation.
What does legal due diligence review?
The typical areas: corporate (titles, minutes, shareholder agreements), material contracts (customers, suppliers, change of control), labor and social security, regulatory and permits, litigation and contingencies, intellectual property, real estate and assets, antitrust, and increasingly data protection, cybersecurity and the target's crime prevention model under Law 20.393. Scope is calibrated to the business and deal size.
How long does it take?
It depends on the company's size and how ordered its documentation is: a mid-size deal usually takes three to six weeks once the data room is populated. The critical deadline is not the report's but the negotiation's: findings must arrive before price and warranties are locked, not after.
What happens with the findings?
They become contract decisions: price adjustments or holdbacks, specific representations and warranties, indemnities for identified contingencies, conditions precedent (obtaining a permit, fixing a title) or, in serious cases, the decision not to close. A finding that does not reach the contract is a risk the buyer chose to give away.
Does due diligence also cover corporate criminal liability?
It must. After Law 21.595, corporate criminal liability transfers in mergers and divisions, and the catalog of attributable offenses multiplied. Reviewing the target's crime prevention model, its internal complaints and pending investigations is no longer optional: an inherited criminal contingency can exceed the value of the deal.
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