When I started out as a corporate lawyer, the most difficult part of legal due diligence was not the voluminous review of documents and preparation of reports.

Some clients or instructing counsels prefer a summary of legal issues with a significance rating for each issue in legal due diligence reports.

Using high, medium, and low-risk ratings or a traffic light system (red, orange, and green) is not effective without a description of the significance of the risk for each category. Some instructing counsels provide their own rating of risk and description.

If you need to come up with your own, an example of the description may look like this:

• Deal breaker
• Issues to be addressed in transaction documents
• Issues to take note of/to be addressed post-completion of the transaction
• Issues requiring further evaluation/information

There is no fixed rule for the descriptions. What matters is having clear descriptions so that both the parties preparing and the parties reading the legal due diligence reports share the same understanding of the significance of each issue identified during the legal due diligence exercise.

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This post first posted on LinkedIn on 6 August 2024.