Due Diligence in Poland

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Updated: 06.03.2024

Due diligence in Poland – Key Facts

Due diligence – definition	Essential part of the transaction, which provides the comprehensive information on the legal status and potential risks related to the target entity and its assets, which may be a subject to the acquisition in Poland.
Aims of due diligence	identify legal risks identify areas for further investigation understanding structure and operations of business / assets potentially – performing valuation preparation of recommendations
Usual types of due diligence	Legal (incl. IP, IT & Regulatory) Financial Tax Operational Commercial Environmental
Who may order due diligence	Buyer Due Diligence (BDD) Vendor Due Diligence (VDD)
Time required for due diligence	Time and scope due diligence analysis depends on size of the target company / asset and time framework of the transaction It may require from a couple of days to a couple of months.
Source documents	Due diligence is usually run based on: Publicly available records Materials provided in Data Room Materials gathered by the Law Firm based on DD Authorization.

What is legal due diligence for?

Due diligence is an essential part of the transaction, which provides the comprehensive information on the legal status and potential risks related to the target entity and its assets, which may be a subject to the acquisition in Poland. Due diligence may consist of different audits, e.g., legal, financial, tax, operational, commercial or environmental.

Due Diligence in Polish Law

Due diligence is no separately regulated by Polish Law. The process and related principles entirely source from international practice of M&A transactions.

As everywhere else in the world, due diligence in Poland is an essential part of the transaction. It provides the comprehensive information on the legal situation and legal risks related to the target entity and its assets, which may be a subject to the acquisition process.

Failure to check certain legal aspects may result in the failure of the investment or a significant increase in its cost.

Failure to check certain legal aspects may result in the failure of the investment or a significant increase in its cost.

Scope of legal due diligence

Scope of the legal due diligence is usually tailored to particular circumstances, e.g., objectives and size of the transaction, transaction timeline, availability of materials, selection of risk sensitive areas.

Usually, comprehensive pre-transaction buyer legal due diligence investigation covers the following fields:

Scope of legal due diligence — What is the scope of legal due diligence?

Other types of due diligence

Aside from legal due diligence typically parallel additional types of due diligence investigations are performed in order to examine relevant risk sensitive areas, e.g., tax due diligence, financial due diligence, environmental due diligence, IT due diligence, IP due diligence.

Due diligence procurement

The legal due diligence is often conducted at the request of the potential buyer (buyer due diligence), who is interested in gathering the key information on the legal status of the target company in Poland or its property.

Obtaining detailed knowledge of all important legal aspects allows you to make a responsible and informed decision on participating in the investment and get prepared for the negotiations.

Sometime, due diligence investigation is requested by the vendor (vendor due diligence). Such legal investigation is carried out at the request of the seller (vendor) before initiating negotiations with potential investors.

Vendor due diligence analysis allows you to prepare the Polish company or its assets for valuation and sale. In particular, by resolving specific legal issues and minimizing or eliminating legal risks that could be used in negotiation process by the potential buyers.

Procurement of due diligence usually consists of conflict check, conclusion of letter of engagement and signing / obtaining power of attorneys / authorizations.

Due diligence procurement

Due Diligence report

A classical due diligence report consists of three key parts: introduction, executive summary and analytical / description part.

Tax due diligence

Tax due diligence usually covers verification of tax risks and the following tax aspects by specialized tax advisors:

Tax arrears verification
Corporate Income Tax (CIT)
Capital gain tax (CGT)
Withholding tax (WHT)
Value Added Tax (VAT)
Transfer Pricing (TP) compliance
Transfer Tax (PCC)
Real Estate Tax (RET)

Most usually tax risks due diligence concentrates of two key taxes, i.e., CIT and VAT, which includes verification of:

CIT returns
CIT calculations
classification of expenses and revenues
correctness of the tax-deductible expenses
VAT returns and VAT refunds
applicable VAT rates verification
correctness of the tax point
input VAT
international transactions on goods and services

Tax due diligence involves specialized advisors verifying key tax risks, focusing on Corporate Income Tax (CIT) and Value Added Tax (VAT), along with other aspects like tax arrears, capital gains, and international transactions.

Due diligence – details of investigation

Corporate

shareholders’ structure
title to shares
restrictions in share disposals
pledge, usufruct and other shares encumbrances
verification of the Articles of Association
verification of Shareholders’ Agreements
verification of internal regulations
shares and bonds emissions
capital and personal relations with other entities
surcharges, additional payments
verification of National Court Register
verification of UBO register
verification of reporting obligations
analysis of Financial Repository
analysis of corporate governance
verification of POAs and authorizations
corporate disputes

Real estates / real property

ownership title (legal title)
mortgages and easements
perpetual usufruct rights
usufruct and other encumbrances
development conditions
local zoning plans
conservation requirements
construction process
reprivatisation claims
management and maintenance
property services and utilities

Here you may find more about: real estate due diligence.

Key movables / fixed assets

vendor’s legal title
lease agreements
pledges, usufruct
other encumbrances

Agreements / Commercial

change of control clauses
key commercial contracts
insurance agreements

Competition law

non-competition agreements
exclusivity clauses
consortium agreements
market sharing agreements

Antitrust law

examination of common markets
merger control / clearance

Litigation

pre-court disputes and claims
court and administrative proceedings
arbitration and mediation

Regulatory

review of regulatory requirements
permits, concessions, and licenses
investment control FDI clearance check

Due diligence Scope of Audit

Financial matters

review of financial documents
credit facilities
key loans
sureties
grants and subsidies
guarantees and warranties
contracts with financial institutions

Employment

employment structure
internal employment law regulation
HR policies
employment and B2B contracts
material liability agreements
non-competition agreements
non-solicitation agreements
collective labour agreements
trade unions
collective labor law regulations
labour law disputes
employment termination disputes

Environmental

review of environmental decisions
environmental clearance
environmental regulations, restrictions
environmental standards and policies
environmental fees

Data protection

GDPR implementation status,
subject and scope of personal data processing
contracts for entrusting of personal data
personal data protection inspector
data protection complaints and proceedings

Intellectual property rights

verification of title to copyright and IP
IP transfers and license agreements
software licenses
patents, trademarks
industrial signs and utility models
confidential information, NDA
know-how and trade secrets
copyright disputes and claims
proceedings before Polish Patent Office

Public aid

state grants and subsidies
EU grants and subsidies
tax exemptions
exemption from social security contributions
co-financing from PFR
disputes and proceedings related to state aid

Frequently asked questions about due diligence

FAQ – Legal Due Diligence

What is the timeline for legal due diligence in Poland?

The duration and scope of the due diligence process in Poland depend on the size of the acquired company or asset and the transaction timeline.

This diligence process can take from a few days to several months, depending on the complexity of the business transactions involved.

Who may perform legal due diligence?

Legal due diligence services can only be performed by licensed professionals such as attorneys and barristers, as well as authorized law firms. Conducting due diligence requires specific expertise to ensure compliance with legal standards and to mitigate risks.

What are the risk markers in due diligence investigations?

Risks in due diligence investigations are usually evaluated on a scale of high, medium, and low. High risks are non-removable and highly probable, whereas low risks are typically removable and may not necessarily materialize. Proper risk management and assessment are crucial in this process.

What does a classic due diligence report include?

A classic due diligence report has three main parts:

Introduction: Outlines objectives, investigation sources, risk markers, assumptions, and the investigators team.
Executive Summary: Summarizes key observations, findings, risk evaluations, and recommendations. It helps assess risks involved and supports sound decision-making for the acquiring firm.
Analytical Part: Provides detailed analysis of the target (company or assets) with extensive evaluation of risks and recommendations. It focuses on the due diligence checklist, potential risks, business relationships, property inspections, sales contracts, and material facts. It covers own due diligence, contingent due diligence, and examines the value chain and business arrangement.

Why should you consider due diligence?

Due diligence is crucial in any business transaction. It provides comprehensive information on the legal status and potential risks of the target entity and its assets. By conducting due diligence, you can:

Identify legal risks and areas for further investigation.
Understand the business structure and operations.
Perform valuations and make informed recommendations.
Mitigate risks and ensure legal compliance.
Make informed decisions that protect your investment.
Conduct enhanced due diligence for thorough risk assessment.
Manage due diligence costs and requisite effort efficiently.
Ensure compliance with public offerings and regulations, considering human rights and individual investors.

Understanding the full scope and meaning of due diligence helps ensure thorough investigation and strategic investment decisions.

Partner with us for expert financial, business and real estate due diligence, ensuring informed decisions and thorough risk assessment for successful transactions throughout Poland.

Due Diligence in Poland – Legal Services

Are you seeking an experienced law firm for due diligence in Poland? Explore our case studies and awards to see how we handle various forms of due diligence, including financial due diligence, business due diligence, and property inspections.

Contact our corporate and M&A attorneys for tailored offers that fit your business arrangements and compliance procedures. We provide transaction advisory services throughout Poland, including in Warsaw, Kraków, Poznań, and Wrocław.

Our team focuses on delivering sound decisions through informed decisions, assessing potential risks, and ensuring all requisite efforts are made for thorough diligence investigations.

Legal due diligence involves thorough diligence audits, review of financial statements, shareholder value analysis, and ensuring human resources and business relationships are properly scrutinized.

We understand the importance of conducting due diligence to evaluate material information, financial records, and the supply chain to inform decision-makers and ensure the best outcomes for your transactions.

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