The role of legal due diligence in business acquisitions in Morocco

The role of legal due diligence in business acquisitions in Morocco is to identify risks, confirm compliance, and ensure that investors or buyers fully understand the legal, tax, and contractual position of the target company before closing a deal. Without this step, buyers face the danger of hidden liabilities, invalid contracts, or regulatory sanctions that could undermine the entire transaction.

In this article, we explore why legal due diligence is essential, the main areas it covers, and how it is carried out in Morocco.

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Why Legal Due Diligence Matters in Morocco

Morocco is a fast-growing investment destination, particularly in manufacturing, renewable energy, and services. Foreign and local investors are increasingly involved in mergers and acquisitions (M&A).

Legal due diligence acts as a protective shield by:

• Highlighting legal risks that could impact valuation.
• Ensuring compliance with Moroccan corporate, tax, and labor laws.
• Supporting informed negotiations between buyer and seller.

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Main Areas Covered by Legal Due Diligence

1. Corporate Structure

• Verification of the company’s registration with the Registre de Commerce.
• Review of Articles of Association, amendments, and shareholder agreements.
• Checking for restrictions on share transfers.

2. Contracts and Liabilities

• Analysis of major contracts with suppliers, clients, and partners.
• Review of financing agreements and loan covenants.
• Identification of guarantees, pledges, and encumbrances.

3. Tax and Compliance

• Examination of past tax declarations with the Direction Générale des Impôts (DGI).
• Assessment of compliance with VAT, corporate tax (IS), and withholding taxes.
• Verification of outstanding tax disputes or risks.

4. Labor and Employment

• Review of employment contracts and CNSS registration.
• Verification of compliance with Moroccan labor law (wages, working hours, benefits).
• Identification of potential employee claims.

5. Regulatory and Licensing

• Ensuring the company has the necessary sector-specific permits.
• Verification of compliance with ONSSA, Bank Al-Maghrib, or other regulators depending on the industry.

6. Litigation and Disputes

• Review of ongoing or potential litigation.
• Assessment of arbitration clauses and dispute resolution mechanisms.

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Practical Challenges of Legal Due Diligence in Morocco

• Document availability: Some companies may not have updated or properly archived records.
• Administrative delays: Obtaining documents from tribunals or tax authorities can take time.
• Language and translation issues: Contracts may be in French, Arabic, or bilingual, requiring expert review.

This is why specialized legal advisors in Morocco play a critical role in conducting thorough due diligence.

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Best Practices for Buyers

1. Start due diligence early – delays can derail negotiations.
2. Use a multidisciplinary team (lawyers, accountants, tax advisors).
3. Request warranties and indemnities in the acquisition agreement.
4. Follow up on red flags instead of ignoring them under time pressure.

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FAQs

1. Is legal due diligence mandatory in Morocco?

It is not legally mandatory, but it is highly recommended. Most professional investors will not proceed without it.

2. How long does a due diligence process take?

Depending on the company’s size and complexity, it can take 2 to 8 weeks.

3. Who usually pays for due diligence?

The buyer typically pays, but in some negotiations, costs may be shared.

4. Can due diligence uncover hidden debts?

Yes, reviewing tax filings, bank loans, and supplier contracts often reveals undisclosed liabilities.

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Conclusion

The role of legal due diligence in business acquisitions in Morocco is to secure investments and protect buyers from hidden risks. By carefully reviewing corporate, tax, labor, and regulatory matters, investors can make informed decisions, negotiate better terms, and ensure a smoother transaction.