As technology continues to develop, more and more aspects of running a business are becoming digitised. Businesses can communicate with each other instantaneously from all over the world, and there is an expectation that to receive all the information you need at the click of a button.
Businesses in the digital age need ways of storing and sharing information quickly, efficiently, securely all in a well-organised manner. A business that has the facilities to achieve this will have a significant advantage over others when it comes to business transactions, whether these occur locally or globally. A virtual data room is a means providing an effective and efficient way of storing information.
What is a Virtual Data Room (VDR)?
A VDR is an online storage space commonly used in business transactions such as mergers and acquisitions (M&A). They are used to store corporate documents for review by prospective buyers performing due diligence on the business and its assets.
Before VDRs, potential buyers would have to travel physically to the premises and inspect hard copies of corporate documents to perform their due diligence. Such inconvenience proved to limit the number of potential buyers and accessing and sifting through hard copies of corporate documents was, quite often, a logistical nightmare.
Why should I use a VDR?
Using a VDR to store your corporate documents presents many advantages when you are selling your business.
- Firstly, it will open the door to more potential buyers. Your business may be in Australia, and a potential buyer in the US can perform due diligence at their convenience. This flexibility also means you can close a deal a lot sooner, and there is less of a risk of buyers losing interest.
- Secondly, not only will parties save time, but they will also save money. It may be costly for a business to establish a virtual data room, but once set up, it will be cost-effective in the long run. Costs will inevitably be more efficient because maintaining virtual data rooms requires less ‘manpower’, and removes travel costs involved in physically attending a data room.
- Lastly, virtual data rooms improve the overall efficiency and transparency of business transactions. Document uploading and due diligence reviews occur in real time and requires keeping a record regarding what documents have been viewed and by whom. VDRs also provide more security enabling users to control who accesses documents, and place restrictions on viewing certain files, as well as restricting copying and printing.
What Should I Store in a VDR?
A VDR can include many corporate documents dependent on the type of business involved. A few examples are:
General Company Data
- documents in respect of capital raising, such as share sales, various agreements between members of the company and its subsidiaries,
- interests granted by the company,
- relevant licenses,
- lists of assets and stock and other related records, and
- minutes of company meetings.
Financial and tax-related documents
- financial statements,
- budgets and performance reports (past and projected),
- expenditure records,
- a list of creditors and debtors,
- tax returns and assessments, and
- any relevant correspondence between the company and its auditors.
Company contracts
- all documents and agreements in respect of acquisitions,
- financing arrangements,
- loans and other credit contracts,
- contracts that create interests in real or personal property of the company,
- general operational,
- consultant and other partnering agreements,
- agreements in respect of intellectual property,
- employment and labour contracts, and
- any other third party contract.
Business controls and information systems
- records of IT systems,
- security mechanisms,
- security reports,
- backups,
- databases,
- records of offsite storage, and
- a list of hardware and software used for information storage and business management.
A VDR can also store other relevant documents for due diligence purposes include relevant legal documents, evidence of insurance, human resources manuals, employment policies and handbooks, and general business operations manuals.
Key Takeaways
If you are experiencing high business growth and expect to bring on more capital, you want to prepare to sell your business eventually, or you just want to be more tech savvy, establishing a VDR may be the perfect step forward for your business. A VDR will not only bring your business into the digital age but will provide a well-organised, secure way of storing your company information. A VDR will also increase efficiency and transparency in business transactions, save your business time and money, and open the door to a broader range of potential investors and purchasers.
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If you are interested in further exploring the option of setting up a virtual data room for your business, our team of experienced business lawyers can provide you with necessary legal advice.
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