Dilit refers to a comprehensive, in-depth and systematic investigation and evaluation of all aspects of the subject matter of the transaction before conducting investment, mergers and acquisitions, listing and other major transactions to determine the feasibility, reasonableness and risks of the transaction. The due diligence involves many fields, such as business, finance, law, etc., in which the legal due diligence is an important part of the due diligence, and it is also the main object of discussion in this paper. Legal due diligence not only requires compliance with relevant laws and regulations, but also requires attention to ethical issues, such as confidentiality obligations, information disclosure, and conflicts of interest. This article will introduce the purpose, content, method and process of legal due diligence, and combine with the specific cases of Shangpu Consulting Group Co., Ltd. (hereinafter referred to as "Shangpu Consulting") in the process of providing legal due diligence services, analyze the legal and moral problems that may be encountered in legal due diligence, and how to effectively solve and avoid these problems.

Purpose of 1. Legal due diligence

The purpose of legal due diligence is to help the parties to the transaction obtain true, complete and accurate legal information about the subject matter of the transaction, assess the legal risks and potential disputes of the subject matter of the transaction, provide a basis and recommendations for transaction decisions, and provide support for the preparation and signing of transaction documents. Specifically, legal due diligence can achieve the following functions:

（1) Verify the legality of the subject matter of the transaction. Through the review of the establishment, change, operation and other aspects of the subject matter of the transaction, confirm whether it meets the requirements of relevant laws and regulations, whether there is a violation of national policies or social public interests, whether it has the necessary qualifications and permits, and whether there are procedures such as unfulfilled or incomplete registration or filing.

（2) to assess the value of the subject matter of the transaction. By reviewing the assets, liabilities and equity of the subject matter of the transaction, we confirm whether it is true, effective and clear, whether there are ownership disputes or restrictive clauses, and whether there is or may be impairment or loss.

（3) Identify the risks that exist in the subject matter of the transaction. By reviewing the litigation, arbitration, administrative penalties, environmental protection, intellectual property rights, labor relations, etc. involved or likely to be involved in the subject matter of the transaction, to confirm whether there is or may be a breach of contract, infringement, violation of the law, and whether it bears or may bear compensation liability or other adverse consequences.

（4) Develop trading plans and negotiate trading conditions. Based on a comprehensive and in-depth understanding and analysis of the subject matter of the transaction, provide a reasonable and feasible transaction structure and plan for the parties to the transaction, and set up corresponding prerequisites, representations and warranties, compensation clauses, etc. in the transaction documents based on the problems and risks found, To protect the legitimate rights and interests of all parties.

Content of 2. legal due diligence

The content of legal due diligence varies according to different industries and different projects, but generally includes the following aspects:

（1) The main body of the company. It mainly includes the procedures for the establishment of the company, the structure of shareholders, the capital contribution of shareholders, the articles of association and its amendments, the corporate governance structure and its operation.

（2) Company operations. It mainly includes the company's business scope, business model, major customers and suppliers, major contracts and agreements, major assets and liabilities, major licenses and qualifications, major taxes and audits, etc.

（3) Corporate legal risk profile. It mainly includes litigation, arbitration, administrative punishment, environmental protection, intellectual property rights, labor relations and other issues and disputes that the company is involved or may be involved in, as well as possible liabilities or losses.

（4) in relation to corporate transactions. It mainly includes whether the company has the qualifications and conditions for the transaction, whether it needs to obtain the approval or consent of relevant departments or agencies, whether there are restrictive clauses or agreements related to the transaction, and whether other necessary procedures or obligations need to be performed.

Methods of 3. legal due diligence

The main methods of legal due diligence are as follows:

（1) Written verification. That is, by consulting all kinds of documents and materials provided by the subject matter of the transaction, such as business license, articles of association, resolutions of shareholders' meeting, contract agreement, certificate of warrant, etc., to verify its authenticity, validity and legality.

（2) Field visits. That is, by going to the office or production and business premises of the subject matter of the transaction to conduct field visits to understand its business status, asset status, personnel status, etc., to confirm whether it is consistent with the written information, whether there is concealment or falsehood.

（3) on-site interviews. That is, through face-to-face communication with the executives, department heads, and grassroots employees of the transaction target, ask about their relevant information, answer questions, discover problems, and obtain first-hand information.

（4) Public channel query. That is, by querying relevant information from public institutions or websites, such as industrial and commercial registration information, litigation and arbitration information, intellectual property information, credit information, etc., to supplement or verify information obtained by other means.

Process for 4. Legal due diligence

The legal due diligence process generally includes the following steps:

（11) Determine the goal and scope of due diligence. According to the purpose and characteristics of the transaction, clarify the object and focus of the due diligence, as well as the content and aspects to be covered by the due diligence, so as to avoid omission or redundancy.

（21) Set up a due diligence team and make a due diligence plan. According to the difficulty and scale of due diligence, select a suitable team of lawyers, and assign their respective responsibilities and tasks, and at the same time formulate a specific due diligence schedule and work arrangement to ensure that the due diligence work is carried out in an orderly manner.

（3) Send a due diligence list and collect information. According to the determined due diligence scope, a detailed due diligence list is prepared and sent to the subject party of the transaction, requiring it to provide the corresponding documents on time and to organize and file the information received.

（41) To conduct on-site due diligence and interview. Based on the collected information, conduct on-site inspections and interviews with the subject matter of the transaction, discover and resolve the problems and doubts in the data, and obtain more useful information.

（5) Write legal due diligence report. Based on all the information obtained during the due diligence process, conduct a comprehensive and in-depth analysis and evaluation of the subject matter of the transaction, and write a legal due diligence report that reflects the true situation of the subject matter of the transaction and the problems and recommendations.

（6) Feedback and modification report. Send the legal due diligence report to the customer and make necessary changes based on the customer's feedback.

（7) Participate in the preparation and signing of transaction documents. According to the results and recommendations of the legal due diligence report, to provide customers with the preparation and modification of the transaction documents, and to provide necessary legal support and assistance in the signing process of the transaction documents.

Legal and ethical issues in 5. legal due diligence

Legal due diligence is a work involving multiple interests and sensitive information. Therefore, when conducting legal due diligence, it is not only necessary to comply with relevant laws and regulations, but also to pay attention to ethical issues, such as confidentiality obligations, information disclosure, conflicts of interest, etc. The following will analyze the legal and ethical issues that may be encountered in legal due diligence and how to effectively address and circumvent them, taking into account specific cases in the provision of legal due diligence services by Champ Consulting.

（11) Confidentiality Obligation

The obligation of confidentiality means that during the legal due diligence process, the due diligence team keeps confidential all kinds of documents, information and data provided by the subject party of the transaction and does not disclose or use them to third parties, unless with the consent of the subject party of the transaction or in accordance with the law. The obligation of confidentiality is an important responsibility of the due diligence team to the subject party of the transaction, and it is also the basis for maintaining the interests and trust of all parties to the transaction.

Case: Champu Consulting was entrusted by an international investment fund to conduct legal due diligence before investing in a well-known domestic Internet company. In the process of due diligence, Shangpu Consulting obtained a large number of trade secrets and sensitive information of the Internet company, such as user data, technology research and development, market strategy, etc. In order to fulfill its confidentiality obligations, Champ Consulting has taken the following measures:

Before the start of due diligence, a confidentiality agreement was signed with the Internet company, specifying the scope of confidentiality, the duration of confidentiality, and the liability for confidentiality.

When conducting due diligence, only provide relevant information to necessary personnel and require them to sign a confidentiality undertaking, and shall not disclose or use it to the outside.

Upon completion of due diligence, return all materials to the Internet company and destroy all copies and backups.

（2) Information Disclosure

Information disclosure refers to the provision of true, complete, accurate and timely documents, information and data to the due diligence team in the process of legal due diligence, so that the due diligence team can have a comprehensive and in-depth understanding and evaluation of the subject matter of the transaction. Information disclosure is an important responsibility of the subject party to the due diligence team and customers, and is also a prerequisite for ensuring that the transaction is fair and reasonable.

Case: Champ Consulting was commissioned by a domestic pharmaceutical group to provide legal due diligence prior to its acquisition of a foreign biotech company. During the due diligence process, the biotechnology company provided Champ Consulting with a number of patent certificates and licenses it owns. However, during the inspection, Champ Consulting found that one of the patents had expired, and the patent related to one of the most important products of the biotech company. In order to fulfill the obligation of information disclosure, the biotechnology company shall promptly consult with Shangpu to explain the reasons and effects of the expiration of the patent certificate, and provide corresponding remedial measures or solutions.

（3) Conflict of interest

A conflict of interest is a direct or indirect interest in the legal due diligence process that exists or may exist between the due diligence team or its members and the subject matter of the transaction or other counterparties that causes or may cause the due diligence team or its members to fail to maintain an objective, impartial and independent position in the performance of due diligence duties. Conflicts of interest are an important issue that the due diligence team or its members should avoid or disclose, and are necessary to maintain the reputation and credibility of the due diligence team or its members.

Case: Shangpu Consulting was entrusted by a domestic real estate developer to conduct legal due diligence before the acquisition of a domestic real estate intermediary company. In the process of due diligence, Shangpu Consulting found that the legal representative of the real estate agency was a relative of a lawyer of Shangpu Consulting. To avoid conflicts of interest, Champ Consulting has taken the following measures:

Before accepting the entrustment, the lawyer disclosed his kinship with the legal representative of the real estate agency to Shangpu Consulting and applied to withdraw from the project.

In forming the due diligence team, Champ Consulting excluded the lawyer and his direct reports and colleagues and comprised other lawyers with no interest.

During the due diligence, Shangpu Consulting explained the lawyer's avoidance to the client and the real estate agency, and ensured the objectivity, impartiality and independence of the due diligence work.

6. epilogue

Legal due diligence is a professional, complex and important work, which requires solid legal knowledge, rich practical experience, keen problem discovery ability, efficient information processing ability and so on. As a professional legal consulting group, Shangpu Consulting has an excellent team composed of senior lawyers and experts to provide customers with comprehensive, high-quality and efficient legal due diligence services. In the past ten years, Champ Consulting has successfully provided legal due diligence services to hundreds of transactions of different industries and sizes, and has won wide recognition and praise from customers and the market.