Thundthornthep Yaem-Uthai, Ph.D. | LAS Legal | 3 April 2026 | ภาษาไทย
Whether you are acquiring a business, forming a joint venture, or investing in a company, the first step is always Due Diligence (DD) — a comprehensive examination process before making a decision. A business that looks good on the surface may conceal serious hidden problems: undisclosed debts, pending litigation, expired licences, or contracts that bind the business post-acquisition. DD is the tool that reveals the truth before you pay, and it forms the foundation for negotiating price and structuring protective provisions in the sale agreement.
Comprehensive Due Diligence for a mid-size or larger acquisition or investment should cover 11 core categories. Each category requires a dedicated specialist.
| # | DD Category | Key Review Areas | Responsible Party |
|---|---|---|---|
| 1 | Corporate DD | Registration, shareholders, directors, articles, key resolutions | Lawyer |
| 2 | Financial DD | 3–5 years of financial statements, cash flow, liabilities, true revenue | CPA / Financial Advisor |
| 3 | Legal DD | Material contracts, encumbrances, Change of Control Clauses | Lawyer |
| 4 | Tax DD | Outstanding tax liabilities, retrospective assessment risk, Transfer Pricing | Tax Adviser |
| 5 | Labour DD | Headcount, employment contracts, accrued severance, Union Agreements | Employment Lawyer |
| 6 | IP DD | Trade marks, patents, copyrights, software licences | IP Lawyer |
| 7 | IT DD | IT systems, data security, PDPA compliance, database architecture | IT Consultant / DPO |
| 8 | Environmental DD | EIA/EHIA, factory licence, soil/water contamination, environmental standards | Environmental Consultant |
| 9 | Regulatory DD | All licences, sector-specific regulatory compliance | Lawyer + Business Adviser |
| 10 | Litigation DD | Pending court cases, arbitration, government agency disputes | Lawyer |
| 11 | Insurance DD | Existing policies, coverage adequacy, coverage gaps | Insurance Broker / Adviser |
Review the company certificate, current shareholder register, director list, articles of association, and board and shareholder meeting minutes for the past 3–5 years. Examine key resolutions such as capital increases, share issuances, and major borrowing. Verify whether any share ownership disputes, share pledges, or undisclosed encumbrances exist.
Analyse Audited Financial Statements for the past 3–5 years, including a Quality of Earnings analysis to assess whether reported revenues are genuine and sustainable. Examine Working Capital, consistency of operating cash flows, debt levels and loan covenants, and any unusual or one-time items that inflate reported profitability.
Many SMEs use self-prepared accounts or only a Compilation-level review. The figures may not reflect reality. Option A: Require the seller to engage a Big 4 or mid-tier auditor to produce a Quality of Earnings report before DD commences. Option B: Use Management Accounts as the base and define a Price Adjustment Mechanism in the SPA.
Review all material contracts to which the company is a party, with particular focus on Change of Control provisions — clauses that entitle the counterparty to terminate or renegotiate if ownership or key management changes. Contracts commonly containing Change of Control clauses include: long-term leases, credit agreements, major customer and supplier contracts, franchise agreements, and licence agreements.
Review the filing and payment of all tax types for the past 5 years: corporate income tax, VAT, withholding tax, and land and building tax. Check for any outstanding tax assessment notices from the Revenue Department and analyse Transfer Pricing if there are transactions with related companies.
The Revenue Department can assess tax retrospectively up to 5 years from the filing date, or 10 years if tax avoidance is found. A buyer may unknowingly inherit these liabilities. Option A: Obtain a Tax Indemnity from the seller in the SPA covering all tax arising before the closing date. Option B: Establish an Escrow Account to cover potential retrospective assessments.
Review the total headcount and employment categories, employment contracts, remuneration and benefits, accrued severance recorded in the financial statements, and compliance with the Labour Protection Act B.E. 2541 (as amended by Amendment No. 9, B.E. 2568) and the Social Security Act B.E. 2533. Review any union agreements and the history of labour complaints or disputes.
Verify the registration status of all intellectual property at the Department of Intellectual Property: trade marks, patents, petty patents, copyrights, and domain name rights. Confirm that IP is owned by the company — not by the founder or director personally. Review all inbound and outbound licence agreements.
This is extremely common in Thai SMEs, where the founder registers the trade mark personally. After acquisition, the company does not own the brand it operates under. Verify ownership clearly and make transfer of all IP to the company a Condition Precedent before closing, or embed it in the CP structure.
Assess the entire IT infrastructure: ERP/CRM systems, cybersecurity, backup and Disaster Recovery plans, and — critically in the modern era — compliance with the Personal Data Protection Act B.E. 2562 (PDPA), including Privacy Policy, Consent Management systems, and appointment of a Data Protection Officer (DPO).
For businesses involving manufacturing, factories, or activities with potential environmental impact, review EIA/EHIA reports, Factory Licence (Ror Ngor 4), environmental law compliance, and potential soil or groundwater contamination from operations by the company or prior tenants. A buyer of land or property may inherit the obligation to remediate contamination.
Review all licences required for the business, their expiry dates, renewal conditions, and sector-specific regulatory requirements — for example, businesses regulated by the Bank of Thailand, the SEC, the OIC, the FDA, or other specialist regulators. Identify any regulatory breaches that could result in licence revocation or sanctions.
Review all cases in which the company is a claimant or defendant across all courts: civil, criminal, labour, tax, intellectual property, and administrative courts; arbitration proceedings; regulator complaints; and threatened claims. Assess the risk and likelihood of an adverse outcome.
Review all insurance policies held by the company: fire, property, third-party liability, Directors and Officers (D&O) Insurance, and other business insurance. Assess whether existing coverage is adequate for the business's risk profile and identify any gaps that will need to be filled post-acquisition.
| Red Flag | DD Category | Risk | Level |
|---|---|---|---|
| Off-Balance-Sheet Liabilities (hidden debt) | Financial / Legal | Buyer inherits liabilities without knowing | 🔴 High |
| Outstanding Tax + Penalties | Tax | Increases total deal cost significantly | 🔴 High |
| IP in Founder's Personal Name | IP | Company does not receive the IP it paid for | 🔴 High |
| Change of Control Clause in Core Contracts | Legal | Key customer/supplier may exit on closing | 🔴 High |
| High-Value Labour or Tax Litigation | Litigation / Tax | Contingent liabilities that may crystallise | 🔴 High |
| Expired or Near-Expiry Core Licences | Regulatory | Business must halt until renewal is obtained | 🔴 High |
| PDPA Non-Compliance | IT / Legal | Administrative fines up to THB 5 million | 🟡 Medium |
| Key Employees Lack Non-Compete Agreements | Labour | May immediately compete after departure | 🟡 Medium |
| Software Used Without Valid Licence | IT / IP | Exposure to copyright infringement claims | 🟡 Medium |
| Insurance Does Not Cover Core Risks | Insurance | Full damage falls on the company | 🟢 Low–Medium |
Before conducting formal DD, buyers can gather preliminary information from several public sources to build a baseline and define the DD scope more precisely.
| Information | Source | Data Available |
|---|---|---|
| Company Certificate / Shareholder Register | Department of Business Development (DBD) | Shareholders, directors, capital, objects |
| Financial Statements | DBD (annual submission) | 3–5 years of accounts (some companies have gaps) |
| Trade Mark Status | Department of Intellectual Property (ipthailand.go.th) | Registered TMs, owner, expiry dates |
| Land Encumbrances | Land Department (title deed search) | Mortgages, ownership |
| Court Cases | Court of Justice (coj.go.th — partial) | Cases that are publicly available |
| Factory Licence | Ministry of Industry | Factory Licence (Ror Ngor 4) status |
Common in retail and service businesses with high cash turnover. The seller may present a "true revenue" figure much higher than the tax accounts in order to justify a higher deal price. A buyer who pays based on "true revenue" may find that post-closing revenue drops because no proper receipts were ever issued. Option A: Verify revenue from Bank Statements for the past 24 months only. Option B: Incorporate an Earnout tied to post-closing performance rather than paying the full price on day one.
DD findings are not merely a risk report — they connect directly to three critical mechanisms in the Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA).
Conditions that must be satisfied before the buyer is obligated to pay and close, for example:
The seller represents and warrants that all information disclosed during DD is accurate and complete. If any representation is later found to be false or materially incomplete, the seller is liable for the resulting loss. R&W cover Corporate Status, Financial Statements, Tax, Labour, IP, Litigation, and other areas.
Where DD reveals issues affecting value, the purchase price can be adjusted through:
Pressure from the seller, or competition from other bidders, may cause a buyer to proceed before DD is finished — leading to unknown liabilities. Option A: Secure an Exclusivity Period in the Term Sheet so DD can be completed without competitive pressure. Option B: Include a Break-Up Fee if the seller withdraws, to compensate for DD expenditure already incurred.
| Week | Activities | Output |
|---|---|---|
| 1–2 | Prepare DD Checklist, send to seller, open VDR (Virtual Data Room) | Approved checklist; VDR live |
| 2–4 | Specialists access VDR documents and begin analysis | Preliminary draft reports by category |
| 4–5 | Management Interview — interview key executives for additional information | Interview notes |
| 5–6 | Site Visit — physical inspection of premises, assets, and operations | Site Visit report |
| 6–7 | Consolidate all category reports; prepare Red Flag Summary | Complete DD Report |
| 7–8 | Use DD findings to negotiate price and define CP and Indemnity in SPA | Negotiated SPA |
| Role | Responsible Party | DD Categories Covered |
|---|---|---|
| DD Coordinator | Lead lawyer or M&A adviser | All categories — coordination and overall summary |
| Legal Counsel | Business lawyer | Corporate, Legal, Litigation, IP, Labour |
| Financial Adviser / CPA | Independent financial advisory firm or auditor | Financial, Insurance |
| Tax Adviser | Tax advisory firm or accounting firm | Tax |
| IT / Cybersecurity Consultant | IT security firm or DPO adviser | IT, PDPA Compliance |
| Environmental Consultant | Environmental engineer or advisory firm | Environmental |
| Industry Specialist | Sector-specific expert | Regulatory, Operational |
DD is not only a process run by the buyer against the seller. In complex transactions, the seller also conducts DD on the buyer — known as Reverse DD or Buyer DD.
The seller engages advisers to DD its own business before going to market — to identify Red Flags and fix them before buyers discover them. Advantages: the seller controls the narrative, shortens the buyer's DD timeline, and demonstrates transparency. Disadvantages: the seller bears the cost, and may surface issues that reduce its asking price.
In large transactions, the buyer may also verify whether the seller has sufficient financial resources to honour R&W Indemnity obligations, and whether the seller has any legal issues that could prevent deal completion.
The buyer receives everything inside the company — all assets and all liabilities, including hidden ones. DD must therefore cover every dimension, supported by comprehensive R&W and robust Indemnity provisions.
The buyer selects only the assets it wants and does not assume unwanted liabilities. DD focuses on the right to transfer each asset, including contract assignment, licence transfer, and IP transfer — all of which may require consent from counterparties or regulators.
Pre-JV DD typically focuses on: (1) the partner's technical and financial capability; (2) whether the IP the partner will contribute to the JV is genuinely owned by them; (3) any history of disputes with prior JV partners; and (4) any Non-Compete restrictions the partner has with third parties.
Before acquiring a franchise, a Mini-DD should cover: (1) the franchisor's financial health; (2) TM and IP registration status; (3) history of disputes between the franchisor and other franchisees; and (4) performance of existing franchise locations.
Once the complete DD Report is received, decisions should be made in a structured manner.
| Situation | Recommended Action |
|---|---|
| No material Red Flags; price is reasonable | Proceed on current terms |
| Moderate Red Flags that can be remedied | Negotiate price reduction or Specific Indemnity |
| High Red Flags that can be fixed before closing | Set CP requiring remediation; if not cured — withdraw |
| Multiple high Red Flags that are difficult to cure | Negotiate significant price reduction or switch from Share Sale to Asset Sale |
| Intentional concealment of material information | Withdraw from the deal — trust lost cannot be recovered |
Environmental DD is the category that buyers most often skip or underweight, yet it has the potential to generate the highest losses if problems are discovered post-closing.
A review of the land-use history and activities conducted on the site — without soil or water sampling — to identify Recognised Environmental Conditions (RECs) that may represent risk.
If RECs are identified in Phase I, Phase II involves sampling of soil and groundwater to determine whether contamination actually exists, and at what level.
A buyer who acquires contaminated land or a factory may inherit responsibility for remediation costs that can run into tens or hundreds of millions of baht, under the Enhancement and Conservation of National Environmental Quality Act B.E. 2535. Option A: Require a comprehensive Environmental Indemnity in the SPA. Option B: Commission a Phase I Environmental Site Assessment before making any acquisition decision involving land or factories.
In an era when data is a core asset, IT DD and PDPA compliance have become indispensable for every deal.
Insurance DD assesses whether the company has adequate risk coverage. The buyer needs to know: (1) whether existing policies cover the core risks; (2) whether there are coverage gaps that must be filled post-acquisition; and (3) whether any insurance claims are pending. Key policies to review include: Property All Risks, Business Interruption, General Liability, D&O Insurance, Product Liability (for manufacturers), and Professional Indemnity.
| Policy | Covers | Check |
|---|---|---|
| Property All Risks | Property damage, fire | Is the Insured Value sufficient relative to true asset value? |
| Business Interruption | Revenue loss from a catastrophic event | Is the Indemnity Period adequate (at least 12 months)? |
| D&O Insurance | Personal liability of directors and officers | Does it cover past operations (Claims Made basis)? |
| Product Liability | Liability arising from products | Is the limit proportionate to the revenue scale? |
Company A was considering acquiring 100% of shares in an SME restaurant group for THB 30 million. During Legal DD, the legal team discovered that the target company had provided a guarantee for a sibling company's loan facility of THB 8 million — not recorded in the financial statements (Off-Balance Sheet Guarantee) and not disclosed in the initial DD materials.
Outcome: Company A used the DD finding to negotiate a THB 4.5 million (15%) price reduction, plus a Specific Indemnity in the SPA requiring the seller to be fully liable for the guarantee obligation. A Condition Precedent (CP) was also set requiring the guarantee to be discharged before closing.
Lesson: Off-Balance Sheet Guarantees are a High-priority Red Flag. All guarantee agreements to which the company is a party — including guarantees for affiliated entities — must be reviewed, under CCC Sections 680 and 686.
Company B, an investor, intended to acquire a 70% stake in a food manufacturing business. During Labour DD, the team found that 12 former employees had filed claims in the Labour Court totalling THB 3.2 million in severance and damages. The litigation was ongoing without judgment, and the target had not recorded any contingent liability in its financial statements.
Outcome: Company B required a CP that all labour claims be resolved (by settlement or final judgment) before closing, and set up an Escrow of THB 4 million for 18 months as a contingency reserve against labour exposure.
Lesson: Labour DD must cover all pending cases in the Labour Court, complaints filed with the Department of Labour Protection and Welfare, and compliance with the Labour Protection Act B.E. 2541 (as amended, Amendment No. 9, B.E. 2568) — especially accrued severance under Section 118.
Company C, a foreign investor, was evaluating a THB 150 million acquisition of an industrial factory in an industrial estate. Environmental DD revealed that the factory was operating activities not covered by the original EIA approval, was discharging wastewater below regulatory standards, and had received three warning letters from the Department of Industrial Works in the prior two years.
Outcome: Company C withdrew from the deal after estimating remediation costs of THB 25–40 million, plus the risk that the Factory Licence (Ror Ngor 4) could be suspended or revoked — which would shut down all operations entirely.
Lesson: Environmental DD for factories must review the EIA/EHIA, the Factory Licence (Ror Ngor 4), the history of regulatory violations, and commission a Phase I/II Environmental Site Assessment under the Enhancement and Conservation of National Environmental Quality Act B.E. 2535 before making any investment decision.
The Supreme Court held that a transfer of shares designed to avoid existing tax liabilities constitutes a fraudulent act under the Thai Civil and Commercial Code Section 237. The Revenue Department is entitled to apply to the court to revoke such a transfer to the extent necessary to protect its tax claim. This decision underscores the critical importance of Tax DD: a buyer who acquires shares from a seller who has orchestrated such a transfer may find the transaction challenged, or may inherit the underlying tax obligation if the transfer is revoked.
The Supreme Court ruled that where a company sells its entire business without completing a formal liquidation process, the seller remains liable for obligations that arose before the sale and were not formally transferred. A buyer who purchases a "going concern" without verifying whether all pre-existing liabilities have been properly addressed may inadvertently acquire exposure to those liabilities if the sale structure is challenged. This case reinforces the need for comprehensive Legal DD and a well-drafted Specific Indemnity covering pre-closing liabilities.
Where the seller transfers a business rather than shares, and the buyer's lawyers have not verified the disposition of all pre-existing liabilities, the buyer may face claims from creditors who were not properly notified of the transfer. Option A: Conduct comprehensive Litigation DD and require a Specific Indemnity for all pre-closing claims. Option B: Ensure proper notice to creditors is given and document all consents to assignment of key contracts before closing.
| Issue | Risk | Level |
|---|---|---|
| Unaudited / uninspected financial statements | Unreliable figures; price may be inflated | 🔴 High |
| Outstanding retrospective tax liabilities | Buyer inherits liability without knowing | 🔴 High |
| IP in founder's name, not the company | Buyer gets the business but not the brand or technology | 🔴 High |
| Change of Control Clause in material contracts | Key customers or suppliers may exit on closing | 🔴 High |
| PDPA non-compliance | Fines and consequential damages | 🟡 Medium |
| High accrued employee severance | Immediate cost on post-acquisition restructuring | 🟡 Medium |
| No Escrow / Indemnity mechanism | No recourse if problems emerge after closing | 🟡 Medium |
| DD Cost | Potential Damage if DD Is Skipped |
|---|---|
| Legal fees: THB 100,000–500,000 | Outstanding tax: THB 5–50 million |
| Tax adviser: THB 50,000–200,000 | Labour claims: THB 1–10 million |
| IT/PDPA audit: THB 50,000–100,000 | PDPA fine: THB 5 million |
| Financial adviser: THB 100,000–300,000 | Overpayment vs. true value: 20–50% of deal price |
| Total DD: ~THB 300,000–1,100,000 | Potential loss: THB 10–100+ million |
Disclaimer: This article is prepared for academic and general information purposes only. It does not constitute legal advice specific to any individual's circumstances. Readers should consult qualified legal counsel before taking any action.