Acquiring a company can be a significant business opportunity. The financial figures may look positive, the seller may present the business convincingly and the market may appear attractive.
However, in a corporate acquisition, the real risk often lies in what is not immediately visible: pending liabilities, tax risks, problematic contracts, disputed assets, employment issues, licensing matters or dependence on individuals who will not remain after the transaction.
Due diligence, meaning the pre-contractual legal, financial, tax and operational review, is the process that allows the buyer to understand exactly what they are about to acquire before becoming definitively bound.
In a serious transaction, due diligence is not a formality. It is the tool that determines whether the acquisition will proceed, on what terms, at what price and with what contractual protections.
What Does Due Diligence Mean?
The term due diligence refers to the exercise of appropriate care and investigation. In the context of acquiring a company or business activity, it describes the systematic review of the target company before completion of the transaction.
The review may cover, among other things, the company’s legal status, financial information, tax and social security obligations, employment relations, commercial contracts, assets, intellectual property, operating licences, pending litigation and overall business operations.
The objective is twofold:
To verify that what the seller presents corresponds to reality.
To identify risks that may affect the value, viability or legal security of the transaction.
Due diligence is not relevant only to large acquisitions. It is also critical for small and medium-sized businesses, family companies, startup investments, transfers of company shares, acquisition of a business branch or entry of an investor.
Share Deal or Asset Deal: Why It Matters
Before the review begins, it must be clear what exactly is being acquired.
In a share deal, the buyer acquires shares or company interests. The company remains the same legal entity, with its history, contracts, rights and obligations. In this case, the review must be particularly careful, because the buyer indirectly acquires the entire corporate reality.
In an asset deal, the buyer acquires specific assets, activities or a business branch. The transaction may be more selective, but it is not risk-free. Issues relating to the transfer of contracts, licences, employees, trademarks, equipment, stock, receivables and liabilities must be reviewed.
This distinction affects the scope of due diligence, the structure of the agreement and the warranties that should be requested from the seller.
The Main Pillars of Due Diligence
- Legal due diligence
Legal due diligence examines whether the target company is legally organised, whether it operates in accordance with its articles and the law, and whether there are pending issues that may affect the transaction.
Typical areas of review include:
The articles of association and all amendments.
Shareholder or partner structure.
Legality of previous transfers of shares or company interests.
Minutes of management, shareholder or partner decisions.
Company filings and status with the General Commercial Registry.
Restrictions on the transfer of shares or interests.
Contracts with customers, suppliers, partners, distributors or agents.
Pending litigation, out-of-court disputes, arbitration or third-party claims.
Encumbrances, security rights, guarantees or restrictions over assets.
Operating licences, approvals and regulatory compliance.
In Greece, review of the General Commercial Registry, competent registries, land registries or cadastral offices where real estate is involved, and available information on judicial and administrative disputes is a key part of the process.
- Financial and tax due diligence
Financial and tax due diligence examines whether the picture presented in the financial information corresponds to the company’s real position.
Typical areas of review include:
Financial statements of previous years.
Revenue, expenses, profit margins and cash flows.
Liabilities to tax authorities and social security bodies.
Loan agreements and other financing arrangements.
Pending tax audits or disputes.
Customer receivables and their collectability.
Supplier liabilities.
Related-party transactions.
Provisions for risks and doubtful receivables.
A business may present a positive accounting picture while facing liquidity issues, dependence on specific customers, unrealistic receivables or liabilities not adequately reflected in the records.
Tax review requires particular care, especially where there are unaudited years, historical liabilities, intragroup transactions, unusual payments or insufficient documentation of expenses.
- Employment and social security due diligence
Employment due diligence is particularly important, especially where the value of the business is linked to its workforce or where the transaction involves the transfer of a business or business branch.
Typical areas of review include:
Number and roles of employees.
Types of employment contracts.
Payroll obligations.
Any outstanding wages, benefits, leave or severance obligations.
Compliance with working time and filings in the ERGANI information system.
Pending employment disputes or complaints.
Social security obligations and contributions.
Contracts of executives or key employees.
In cases involving the transfer of an undertaking, establishment or part of an undertaking, special rules protecting employees may apply. For this reason, general statements that “employees are transferred” or that “liabilities do not concern the buyer” are not sufficient. The transaction structure must be assessed precisely.
- Review of contracts and commercial relationships
The target company’s contracts often determine the true value of the business.
The review usually covers:
Contracts with key customers.
Supply agreements.
Distribution, agency or franchise agreements.
Commercial lease agreements.
Loan and financing agreements.
Technology, software and support agreements.
Exclusivity, non-compete or change of control clauses.
Termination rights due to transfer or change of shareholder.
Particular attention must be paid to change of control clauses, meaning clauses that allow a counterparty to terminate or amend the agreement in the event of a change in ownership or control of the company.
A company may appear commercially strong, but if its key contracts can be terminated after the acquisition, its value changes significantly.
- Assets and encumbrances review
The buyer must know whether the assets presented as belonging to the business actually belong to the company and whether they are free from encumbrances or restrictions.
The review may include:
Real estate and real estate rights.
Commercial leases.
Equipment and fixed assets.
Vehicles.
Inventory.
Receivables.
Pledges, mortgages, prenotations of mortgage or other security rights.
Pending third-party claims.
If the company uses critical assets owned by third parties, related persons or the seller personally, this must be identified before signing and regulated contractually.
- Intellectual property, trademarks and data
In many modern businesses, the real value lies not only in fixed assets, but also in the brand, software, domains, customer databases, data and know-how.
The review should cover:
Trademarks and distinctive signs.
Domains and social media accounts.
Copyright and intellectual property rights.
Software licences.
Databases and customer lists.
GDPR and personal data compliance.
Contracts with developers, designers, agencies or external collaborators.
A common issue is that the brand or domain may not belong to the company, but to an individual, collaborator or related company. This may create a serious risk for the buyer.
- Operational and commercial due diligence
Operational due diligence examines whether the business can continue to operate effectively after the transfer.
It may cover, among other things:
Quality and stability of the customer base.
Dependence on a small number of key customers.
Dependence on the founder or main shareholder.
Condition of equipment.
Technology infrastructure.
Internal organisation.
Competitive position in the market.
Ability to continue operating after the seller’s departure.
A business that relies mainly on the owner’s personal relationships may lose a significant part of its value unless there is an appropriate transition period or contractual support obligation after completion.
Common Due Diligence Findings in Greece
In transactions involving Greek companies, common findings include:
Incomplete or delayed filings with the General Commercial Registry.
Unclear shareholder or partner structure.
Historical transfers of interests without complete documentation.
Tax or social security issues.
Receivables shown at overly optimistic value.
Pending employment disputes.
Contracts with unclear termination or transfer provisions.
Dependence on a key customer or supplier.
Operating licences that do not fully cover the actual activity.
Trademarks, domains or digital assets not owned by the company.
Guarantees, loans or security interests not clearly presented.
These findings do not necessarily mean that the transaction must be abandoned. They do mean, however, that they must be assessed, valued and reflected in the negotiation.
How Due Diligence Affects Negotiation
Due diligence does not merely lead to a “yes” or “no” on the acquisition. Its findings directly affect the structure and terms of the transaction.
It may lead to:
Reduction or adjustment of the purchase price.
Retention of part of the price until specific conditions are satisfied.
Seller warranties and representations.
Indemnity clauses for specific identified risks.
Escrow mechanisms for part of the price.
Conditions precedent before completion.
Obligation to resolve pending issues before closing.
Transitional support by the seller after acquisition.
Right to withdraw if material issues are discovered.
Without due diligence, the buyer negotiates with incomplete information. With proper due diligence, negotiation is based on facts rather than general assurances.
When Should Due Diligence Take Place?
Due diligence usually takes place after the signing of a confidentiality agreement — NDA — and, in many cases, after a non-binding letter of intent or memorandum of understanding.
Before sensitive documents are disclosed, the following should be regulated:
Confidentiality of information.
Who will have access to the data room.
Prohibition of using the information for purposes other than evaluating the transaction.
Protection of trade secrets and personal data.
Return or destruction of documents if the transaction is not completed.
The timing and scope of the review depend on the size of the company, the complexity of the transaction, the industry, the quality of available information and the level of risk the buyer is prepared to assume.
What Is a Data Room?
A data room is an organised space, usually digital, where the seller uploads the documents and information to be reviewed by the buyer and the buyer’s advisers.
A properly organised data room may include:
Corporate documents.
Financial statements.
Tax records.
Contracts.
Licences.
Employment documents.
Asset records.
Judicial and administrative disputes.
Intellectual property and GDPR documents.
The data room should have a clear structure, controlled access and a record of the documents provided. The completeness and quality of the information made available is often an indication of how well organised the target company is.
Frequently Asked Questions About Due Diligence in Greece
Is due diligence legally mandatory?
No. There is no general legal obligation to conduct due diligence before every acquisition. In practice, however, it is a fundamental protection mechanism for the buyer and a critical stage of any serious transaction.
In some cases, failure to conduct a review may also be relevant when assessing the level of care exercised by the buyer, especially where professional investors or complex transactions are involved.
Can due diligence be conducted without a lawyer?
Certain financial or operational matters can be reviewed by financial or technical advisers. Legal due diligence, however, requires specialised assessment of contracts, corporate documents, pending disputes, licences, employment matters and legal risks.
In an acquisition, the lawyer’s role is not formal. It is to identify risks that may not be visible in the financial information and translate them into specific contractual protections.
What if the seller refuses to provide documents?
Refusal or unjustified delay in providing essential documents is a serious warning sign. It does not automatically mean that there is a problem, but it must be assessed carefully.
The buyer may request additional assurances, specific warranties, a price adjustment, postponement of the transaction or, if the issue is material, withdraw from the negotiation.
Does due diligence apply to the purchase of company shares or interests?
Yes, and it is particularly important. In the purchase of shares or company interests, the buyer acquires participation in the company itself, which continues to carry its history, contracts, claims and liabilities.
For this reason, a share deal usually requires particularly careful legal, financial, tax and employment due diligence.
What is an indemnity clause?
An indemnity clause is a contractual provision under which the seller undertakes to compensate the buyer for specific losses or liabilities connected with facts existing before the acquisition.
Such clauses are often used where due diligence identifies a specific risk, such as a tax issue, litigation, contractual breach or employment claim.
What happens if due diligence identifies problems?
Problems do not necessarily mean that the transaction must be cancelled. They may lead to a price adjustment, specific warranties, retention of part of the price, an obligation to remedy issues before closing or a different transaction structure.
The important point is that they should not be ignored and should not remain outside the transaction documents.
Work with an Experienced Corporate Law Firm in Greece
A company acquisition is one of the most important business decisions an investor or entrepreneur can make. The value of the transaction is not determined only by the purchase price, but also by how thoroughly the target has been reviewed.
Our firm provides specialised legal support in matters involving due diligence, corporate acquisitions, transfer of company shares and interests, commercial contracts, corporate restructurings and transaction negotiation.
We undertake legal review of the target company, assessment of corporate documents, contracts, pending disputes, licensing, employment and regulatory matters, as well as the drafting of contractual protections for the buyer or investor.
Our aim is to identify critical risks before signing, so that the transaction is based on a real picture, clear terms and meaningful legal protection.
This article is for informational purposes only and does not constitute legal advice. Each case requires an individual assessment, based on its specific facts and the applicable legal framework. For tailored legal advice, please contact our office.
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