When is Legal Due Diligence required? Indonesia LDD

When is Legal Due Diligence required?

When is Legal Due Diligence required – With a population of over 250 million or the fourth largest country in the world, Indonesia’s economic growth reaches 5.07 percent in 2017. Meanwhile, consumer price index inflation stood at 3.18 percent or an average of 3, 8%, the lowest in history, this can be regarded as a positive signal for the global economy and also for Indonesia in good condition.

Digital technology business in Indonesia still has a big chance to grow. Referring to the number of internet users in Indonesia is more than 83 million in 2017. Besides, glancing from the growth in 2017, there are still some other business sectors that are still interesting and believed to grow in 2018 and in the following years, such as: the service sector, transportation, infrastructure/construction, real estate, healthcare, financial and insurance services, accommodation and F&B, and other sectors.

Based on the facts above, cannot be denied, in 2018 Indonesia is still one of the investment targets for investors to develop and/or expand its business. This is also evident from the number of startups that were predicted to be a potential business (unicorn) but the scale of business (financial) is still small.

Further, to boost investment, Indonesian Government has adjusted some regulations to facilitate investors in ease doing business. It is also very well welcomed by investors, especially foreign investors, in which investment realization shot up more than IDR 690 trillion throughout 2017, either by establishing a new business or taking over (merger or acquisition) of shares in a company.

We understand that not infrequently indeed, investors are given interesting data on when to make an investment. therefore, in this article, we will discuss the effective ways when investors who want to cooperate or invest in a business in Indonesia.

One of the effective ways to risk mitigate in a transaction is to conduct a comprehensive Legal Due Diligence (“LDD”). To our knowledge,  LDD focuses primarily on legal compliance, changes in control triggers and uncovers the unknown. Therefore, we agreed that the purpose of LDD is to identify risks and obligations, provide advice and, of course, as a basis for negotiating before entering into a transaction.

The procedure of LDD, which usually involves reviewing a handful of documents, legal compliance, company assets, business operations and interviewing business partners and/or target company employees.

The process can be intimidating in some case/project because the appointed attorney will peruse through the smallest details of the company’s. Therefore, we suggest for investor, business owner or target company owners must understand this procedure, and to prepare for facing it in the future.





There are several reasons for LDD, depending on the business purposes. the expected outcome of the LDD process, as follows:

  • Scrutinize a company’s legal status

Before conducting a partnership, merger, acquisition or other transactions, a company may need to be reviewed in its legal status. It is important to avoid future problems caused by shady companies that have questionable business practices.

  • Understand the details of share ownership

If the business involves share transfer, LDD is necessary to determine the details of share ownerships before and after the process. It will formally determine where the responsibilities and main control lie.

  • Determine potential values and liabilities

LDD helps to determine potential values of a company, which includes aspects such as the ownership of intellectual property, certain business restrictions, manpower and benefit systems, and records of lawsuits or claims.

  • Create proper documents

LDDis important to create proper new documents related to any changes in the company. The documents may include the new company policies, agreements, SOPs, and warranties. If there are disclosure acts to be done, proper documents must also be prepared.

All the purposes of LDD basically boil down to acquiring objective documents and data from the target companies. These data have important benefits, as explained in the next part.






The procedure of LDD is basically a comprehensive risk-checking method. The importance of LDD involves benefits such as:

  • Risk management

All good businesses run on certain measures of risk management. By running through all the company’s documents and legal histories, you can mitigate risks before deciding to acquire or form a partnership with other companies. This risk management step can also provide early warnings about questionable business practices.

  • Better business-related relation

LDD creates a tighter relation between two businesses. When a company requests for such procedure on a target company, representatives of the two businesses will have to meet frequently. The representatives of the two companies will communicate closely, making it easier to forge a good relationship when the LDD ends in a business decision.

  • Cost efficiency

LDD helps companies avoid unnecessary spending caused by careless business strategy. For example, if the LDD process finds questionable business practices by prospective target companies, the client can afford to spend on future lawsuits or fees. It also applies to the target company.

  • Better adaptability to regulation shifts

Fluctuations in global finance have caused governments and financial institutions to shift, change, or modify their regulations. LDD, which involves thorough reviews through documents, business, and legal histories, are used to keep following regulations properly.

  • Higher assurance in business

Assurance in business is important to create the best strategies. LDD helps business investors to get more assurance from their major decisions. This is especially important in merger and acquisition, in which major parts of responsibilities shifted.

  • Better adaptation in a digital era

The world is currently entering “the fourth industrial revolution era, which shows major shifts to automated procedures and digital technology applications. LDD helps companies to review all their agreements, terms and conditions, policies, and contracts. They are helpful to adapt to the digitally-improved business system.

In short, LDD is an important procedure for any parties. Going through this process can save a lot of pain from future problems because of undetected risk factors.





When a target company is subjected to the procedure, there are several future hurdles to expect:

  • Showing the company’s greater picture

A prospective investor will want to understand the greater picture of a target company. It consists of the company histories, visions and missions, operational systems, general business practices, and all the basic information.

Nowadays, even small companies are expected to have websites, where the information can be gained. However, companies can also prepare other summaries, such as in the forms of financial statements and audit results.

  • Long period, depending on the size

LDD may last for several days or a week for a small company with uncomplicated transaction records. However, the same procedure can last several months in larger companies. The process also takes longer if the target company has several business practice issues, or if the legal history records show some past problems.

  • Document preparation and interview

LDD requires reviewing and cross-checking a handful of documents, so the target company must prepare all the important documents and their copies. They include documents about employee benefits, taxes, litigations, contracts, and such. The company must also prepare people for related positions to answer interview questions.

  • Presenting the results

Depending on the company size and the complications in the findings, the result of LDD procedure may be presented in certain methods. A small company with limited operational areas may just need to write a small report or conduct presentation in a small setting. However, large companies may need to write a thick memorandum, with all the analyzed aspects explained, complete with possible solutions.

The prospective buyer must know why Legal Due Diligence is required at first place. Clear expectations will make the task easier for the attorney and target company, which makes the process smoother.



When is Legal Due Diligence required? Indonesia LDD


Indonesia is an emerging power in South East Asian economy force that is currently undergoing a digital transformation. Even successful businesses such as Google and Microsoft have started looking for partnerships, acquisitions, or business relations in the country. All foreign companies must follow the country’s regulations in conducting LDD, which may require slightly different methods.

Here are the outlines of LDD procedure in Indonesia:

  • Finding the legal expert

Finding Indonesia legal vendor for due diligence should be done way before the procedure is executed. Even if a large company has its own legal group, it is better to find independent attorneys that have experiences with the procedures. Find the ones that have conducted LDD in companies with similar business types to the target companies.

  • General meeting

Decision makers from both companies must meet to discuss the goal of LDD, based on the companies’ visions and the goals of the future business decisions, which form the legal base of the LDD procedure. This is also an opportunity to introduce the hired attorneys or experts.

  • Determining the scope of the procedure

LDD may be done on all business aspects or just a few. For example, there are LDD procedures that only check on specific contracts, debts, assets, finances, or legal reports.

  • Calculating period and budget

Knowing the scope of LDD is important to calculate period and budget. The target company must determine how many people should act as representatives, how long the employees and managers can participate in the process, and how much budget to spend in aiding the process.

  • Adjusting the report format

While LDD is a general practice in the global business world, different countries may use slightly diverse formats in reporting and document. If the procedure is arranged between companies from different countries, all involved parties must have the same consensus about the report and document formats that apply in Indonesia.

  • Site visits and interviews

Site visits and interviews are important parts of LDD. The appointed attorney may visit not only the office building but also all the company’s assets. Depending on the business, this may include lands, stores, outlets, manufacturing areas, and such. Meanwhile, interviews are conducted toward the appointed company representatives.

  • Information-based investigation

Sometimes, an attorney needs to interview other institutions or third parties to support the review process. For example, in the case of legal histories, the counselor may need to visit the court where the case was settled.

  • Cross-checking the findings

Once the interviews and document reviews are done, an attorney still needs to cross-check his or her findings. The counselor can take the findings to institutions that have authorities in market capitals, finances, stock markets, and other related fields.

Understanding the importance of due diligence when buying a business in Indonesia is important to create the best business decision in this country.





Merger and Acquisition (M&A) is a process that often requires long, grueling process of LDD. This is because M&A may involve the shifts of responsibilities, shares, intellectual properties, assets, and other major business aspects.

In M&A due diligence process, the target company and attorney must prepare a handful of important documents, such as:

  • Financial Report
  • Corporate documents
  • Shares composition & documentation
  • Boards of Directors and Commissioner (and also trustee)
  • Business Licenses
  • Assets Historical
  • Insurances
  • Employment
  • Agreement
  • Loan & pledge

Each of this document must be prepared long before the actual procedure is conducted. Consult with the appointed legal counsel to make sure that all the documents are complete.





LDD may sound like a grueling procedure, especially for an important decision such as merger and acquisition. However, the involved companies can make it easier with these tips:

  • Understand the needs and goals

Knowing the goals of the procedure can determine how the LDD procedure conducted. Companies that request and endure the procedure must understand the scope (full or partial) and all aspects of the scrutinized field. Do the research well and hire a good legal team to discuss the future plan.

  • Create clear investigation scope

A company that hires attorneys to conduct LDD must provide clear investigation scope, so the lawyers can perform more efficiently. For example, when asking the lawyer to review intellectual property aspect in product material, make sure to describe your specific wishes for final report forms.

  • Have open and honest communication

Regardless of sizes, any companies that are involved in LDD procedure must always create open communication lines between all the involved parties. Each company representative should provide more than one communication means, just in case.

  • Don’t forget the cybersecurity aspect

Cybersecurity became hot topics in Indonesia, especially with the rising trend of startup developments, mergers, and acquisitions. Make sure to involve attorney with a specialty in this aspect, if necessary.

  • Take notes of all costs

When discussing the costs and other financial aspects, make sure to understand how much money spent. Understand the possible costs of exclusivity breaching and other risks during the procedure. Make sure to agree about all the costs and review them with the attorneys before the procedure starts.

With all these tips, the LDD process may not get shorter, but the companies can save much money, time, and energy before creating any major decision.




LDD is an important step to do before conducting any major business decisions between two companies. Merger and acquisition are one of the major business strategies where risk management and thorough evaluations are important. Make sure to complete each due diligence checklist for acquisition and discuss with your attorney to make sure that the procedure runs smoothly.

Get Legal Assistance

Aside from the need to get a lawyer, paralegal services can assist you in doing research in the law field, obtaining court clearance certificates.To map legal compliance either in permit part or business entity licensing, paralegal services can fulfill your needs.

If you are a foreign company owner or a foreign citizen, you need someone who can be trusted to conduct some research to find out all the things you need to start your business or know more about social activities in Indonesia.

If you are the owner of a law firm or a company owner, and you want to obtain a court clearance certificates that you need for LDD report on the district court in all cities in Indonesia, without a doubt, we will help you reduce your cost without having to send your legal staff, running out of time while they are on the way and when they were needed to do their tasks.

The benefits of LDD & Paralegal services from SMART:

  1. Effective: Because the legal process is done by a qualified law team who has a great experience on LDD project.
  2. Cost Efficiency: All the tasks are handled by qualified partner with effective legal cost.
  3. Time Efficiency: Your Company can focus on your main business.


If you have any questions about Online Content and Application or require further consultation and assistance, you can arrange a meeting with SMART Legal Consulting at:

E:  info@smartcolaw.com

H: +62821-1234-1235



Editor: Igo

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