A legal audit of a firm is an orderly examination of documents and registers that shows the legal, tax and HR risks weighing on a business. It is carried out before buying or selling shares, bringing in an investor, converting a company, or simply to tidy up the firm before an inspection. The result is a report with a list of problems, an assessment of their severity and a recommendation on how to remove them or secure them in the contract.
When an audit makes sense
- Purchase of shares or an enterprise — the buyer takes over the company together with its past: contracts, disputes, arrears.
- Sale of a firm — an audit conducted by the seller (vendor due diligence) allows gaps to be removed before negotiations and the price to be defended.
- Entry of an investor or a new shareholder — the investor will require such an examination anyway.
- Internal review — rapid growth, new management, employing foreigners, change of accounting office.
- Before taking a management board role — a board member may be personally liable for the company's debts, so it is worth knowing its condition.
What is checked — areas of review
| Area | Typical questions |
|---|---|
| Corporate governance | Are the articles of association, resolutions and KRS entries consistent? Were shares effectively taken up and transferred? Have ultimate beneficial owners been reported to CRBR? |
| Contracts with counterparties | Are there change-of-control clauses, contractual penalties, non-compete clauses, exclusivities? Can key contracts be terminated upon a change of owner? |
| Intellectual property | Does the company have rights to the code, trademark, domains? Have B2B developers transferred copyright in writing? |
| Employment | Are civil-law contracts in essence employment contracts? Do foreigners have valid work bases? Are working-time rules observed? |
| Taxes and ZUS | Are there arrears? How were VAT, transfer prices and costs settled? Does the company have individual tax rulings? |
| Assets and real estate | Who is the owner? What are the encumbrances in the land and mortgage register and the register of pledges? |
| Disputes and proceedings | What litigation, inspections and administrative proceedings are ongoing? Is the company listed in the National Register of Debtors? |
| Regulatory compliance | Personal data protection (RODO), anti-money laundering, sector licences and permits. |
Audit step by step
- Setting the scope and materiality threshold. At a small service company there is no point analysing every PLN 2,000 contract — it is enough to set, for example, a value threshold or a list of key counterparties.
- Non-disclosure agreement. The seller shares documents only after signing it.
- Request list. The auditor sends a list, and the seller places documents in a virtual data room or shares them in an agreed way.
- Examination of public registers. Independently of the documents from the seller, the auditor checks publicly available data (see below).
- Questions and talks with the management. Clarifying ambiguities, filling gaps.
- Report. Usually in a table: issue, source, risk (high, medium, low), recommendation.
- Translating findings into the contract. A price reduction, part of the price paid into an escrow account, representations and warranties from the seller, an obligation to cure defects before closing.
Registers worth checking on your own
- KRS — a current and full extract, management board, commercial proxies, capital, arrears in filing financial statements.
- Repository of Financial Documents — financial statements; the annual statement is approved within 6 months of the balance-sheet date and filed with the KRS within 15 days of approval. Missing statements are a warning sign.
- CRBR — who actually controls the company.
- National Register of Debtors — bankruptcy and restructuring proceedings and enforcement proceedings discontinued as ineffective.
- White list of VAT payers — VAT status and bank accounts reported to the tax office.
- Electronic land and mortgage registers — ownership of real estate, mortgages, easements.
- Register of pledges — registered pledges on movables and shares.
- Polish Patent Office databases — trademarks and their owners.
Certificates of no arrears from the tax office and ZUS are issued on the company's request (the tax office will issue them to a counterparty only with its consent), so making their presentation a condition of the deal is worthwhile.
Most common findings in small and medium firms
- no written agreements transferring copyright from developers and designers on B2B — the company formally does not own the rights to its own product,
- B2B cooperation that bears the features of an employment relationship, which creates the risk of overdue contributions,
- resolutions not adopted or not reported to the KRS (e.g. approval of the financial statement, change of management board),
- outdated CRBR notification after a change of shareholders,
- contracts with key clients with a termination right on change of owner,
- no personal data protection documentation or data processing entrustment agreements.
Personal risk of the management board — why an audit also protects managers
Shareholders of a sp. z o.o. as a rule are not liable for its obligations. It is different for management board members: if enforcement against the company proves ineffective, they are liable for its debts jointly, severally and personally (Article 299 of the Commercial Companies Code), unless they filed a motion for bankruptcy or restructuring in time. A person who is to join the management board of a company being acquired should therefore know its real situation before signing the consent to appointment.
Example: purchase of a software company
An investor wants to buy 100% of the shares in a sp. z o.o. developing a mobile app, valued at PLN 1.2 million. The audit shows that three of five developers work on B2B without agreements transferring copyright, the CRBR notification was not updated after a change of shareholder, and the company has a disputed invoice for PLN 40,000. The parties agree that before closing the developers will sign agreements transferring the rights, the management will update CRBR, and 10% of the price will be paid into an escrow account until the dispute is resolved. Without the audit, the investor would have bought a company that formally did not own its main product.
The rules on filing financial statements are described by Biznes.gov.pl.
How Good Balance helps
We carry out legal and accounting audits of companies before a transaction, as well as internal reviews, and translate the findings into specific contract provisions — as part of a legal consultation. For the sale or purchase of a firm, we support the whole process in our service company sale. If the audit covers data protection, our guide RODO in a firm will be helpful.