Most businesses are prepared for operational and strategical risks and good understanding of system but still remain unaware of the loss they can suffer due to the Legal Risks. The term legal risk refers to the financial harm or some other damage that may occur in a business if the company or the individual does not comply with the laws related to his business. These risks affect the income, image and reputation of the business very seriously.
Legal risks can either be caused due to misunderstanding of the laws or negligence of the owner or company. Due to the different causes, there are different legal risks involved in a business.
Contracts play an important role in all business deals but if the terms of the contract are not kept there may arise legal disputes leading to loss of the both the parties. Contractual risks may also arise if heed is not given to the proper laws while framing the agreement and the contract may be then turn out to be void. These risks can be avoided if proper attention is given to the laws while documenting the contract and all the deadlines and terms decided are met accordingly by both the parties.
Compliance Risk arises due to non-compliance with statues, policies or other laws. Regulatory risk is caused due to the changing laws and policies that affect the market and the business. Non-compliance can cause huge economic loss to the companies.
These risks arise from the sources other than those of Compliance and Regulatory risks i.e it arises due to the underpinnings of the of the industries or big investment companies.
Disputes may arise between the two business co-heads of the company or company with its customers or among the partners.
Legal due diligence plays vital role in many areas which include: Business Transactions and deals, Merger and Acquisitions, Assessment of Supplier Quality, Business and Company law affairs, Commercial Property Dealings, Capital Markets, Commercial and Corporate Finance, Hedge Funds, Sale of Intellectual Property.
Litigation risk is the risk of getting legal action. It analysis the chance or a possibility that legal action will be taken against the company in the future from a certain contract or a transaction.
It provides the management of the company with the timely assessment of the upcoming risk of a legal action along with future financial problems of the company because of it. In the litigation risk assessment, these components are generally included:
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Risk analysis is the process of identifying and analyzing potential future events that may adversely impact a company. A company performs risk analysis to better understand what may occur, the financial implications of that event occurring, and what steps it can take to mitigate or eliminate that risk.
Commercial contracts identify involved parties and their deliverables. They outline transaction details, payment terms, goods or services exchanged, date, and price. However, it's important to note that each commercial contract is different and contains varied elements.
Sometimes, risk analysis is important because it guides company decision-making. Consider the example of a company considering whether to move forward with a project. The decision may be as simple as identifying, quantifying, and analyzing the risk of the project.
Risk analysis is also important because it can help safeguard company assets. Whether it be proprietary data, physical goods, or the well-being of employees, risk is present everywhere