Due diligence has a reputation as a legal process. Lawyers conduct it. Legal opinions are produced. Contracts are reviewed. Representations are given and warranties are negotiated. And when it goes badly — when it slows down a transaction, produces an unexpectedly large escrow requirement, or causes a potential investor to quietly withdraw — the instinct is to look for a legal explanation.
In my experience, the legal explanation is rarely the right one. The problems that derail due diligence — the ones that produce delay, discount, and doubt — are almost always structural. They are problems of how a business is organised and how that organisation reads to someone approaching it from the outside for the first time.
Understanding the difference changes how you prepare. And preparation, in due diligence, is everything.
The formal purpose of due diligence is verification. An investor or acquirer wants to confirm that what they have been told about a business is accurate: that the assets are real, the revenues are what they appear to be, the liabilities are disclosed, and the legal entities are properly constituted.
But the actual experience of due diligence — what it feels like from the inside of a transaction — tests something different. It tests whether the structure of a business can be explained clearly to people who know nothing about it and have no reason to give it the benefit of the doubt.
An investor or acquirer conducting due diligence approaches a corporate group as a stranger. They have no shared history with the owner. They do not know why decisions were made at particular moments. They cannot feel the logic that is obvious to everyone who has spent years inside the business. They can only read what is in front of them: the corporate documents, the financial flows, the ownership structure, the governance records.
When what is in front of them is coherent — when the structure tells a clear story that matches the business narrative the owner has presented — due diligence moves quickly. Questions are answered before they are asked. Concerns dissolve when they encounter documentation that anticipated them.
When what is in front of them is opaque — when the structure does not match the narrative, when entities exist without obvious purpose, when flows cannot be easily traced, when governance records are thin — due diligence slows down. Questions multiply. Advisers become cautious. And at some point, the investor begins to wonder whether the opacity is accidental or deliberate. That doubt, once it takes hold, is very difficult to dislodge.
I have been involved in enough transactions — as an adviser to the seller's side, helping to prepare structures for scrutiny — to recognise the patterns that reliably produce difficulty. They are not exotic. They are the same patterns I see in banking relationships that come under pressure. The audience changes; the underlying problem does not.
A structure that grew without being governed. Most international businesses do not build their corporate structures from a plan. They build them incrementally: incorporate where a client is, add an entity for a specific transaction, open an account for a particular purpose, register in a new jurisdiction when a new market opens. Each decision was sensible at the time. The result, after several years, is a construction that nobody designed and that nobody, including the owner, can explain in a way that sounds intentional.
To a due diligence team, this looks like a structure that has something to hide. It almost never does. But the absence of an evident logic — the presence of entities that exist for reasons nobody can now articulate, of jurisdictions that were chosen for convenience rather than strategy, of flows that cross multiple legal entities without a clear rationale — produces the same questions as deliberate concealment would. And those questions are not easy to answer once they have been asked, because the honest answer is often: "we are not entirely sure why this is structured this way."
A cryptocurrency layer with no defined place in the architecture. This pattern appears with increasing frequency as the businesses I work with grow more sophisticated. A group has traditional operations and, separately, some level of cryptocurrency activity — held in wallets, received from counterparties, used in specific transactions, or forming part of working capital. Individually, each element is defensible. Collectively, if the crypto layer has never been formally integrated into the corporate architecture, it creates a distinct due diligence problem.
Investors and acquirers in the current environment are not categorically opposed to cryptocurrency. Many have significant digital asset exposure themselves. But they need to understand exactly what the crypto layer is, what legal entities hold it, how it connects to the main business, how the custody arrangements work, and what regulatory framework applies. If those answers require extensive explanation during due diligence — rather than being apparent from the documentation — the crypto layer will attract disproportionate scrutiny and, in many cases, a discount that bears no relationship to its actual materiality.
Documentation that reflects what the structure was, not what it is. Businesses change. Ownership structures are reorganised. Legal entities change roles. Intercompany arrangements that once served a clear purpose become vestigial. Banking relationships are replaced. New jurisdictions are added.
The documentation rarely keeps pace. Shareholders' agreements describe arrangements that have been informally superseded. Intercompany contracts reflect flows that no longer occur. Governance records are sparse for periods when the business was moving quickly and nobody was focused on formal process. Minutes, if they exist at all, record decisions without recording the reasoning behind them.
To a due diligence team, documentation that does not match reality is not merely an inconvenience. It is a risk indicator. If the documentation says one thing and the business operates another way, the question is: what else is the documentation wrong about? That question, asked quietly in an adviser's report, can erode confidence in a transaction faster than almost any substantive finding.
The response most sellers reach for, when due diligence begins to produce difficulty, is to add lawyers. More legal review. More representations. More warranties. A larger escrow to cover identified risks.
This response treats the symptom, not the cause. Legal instruments can protect a buyer against specific known risks. They cannot make an opaque structure legible. They cannot explain why entities exist. They cannot provide governance records that were never created. They cannot give a cryptocurrency layer the architectural coherence it never had.
I do not say this to diminish legal work — legal due diligence matters, and the lawyers involved in complex transactions do essential work. But there is an architectural layer that sits above the legal layer, and it is almost always addressed too late. By the time due diligence has begun, the structure is what it is. Changes made during a transaction are viewed with suspicion. Documentation created in response to specific due diligence questions looks, and is, reactive.
The only effective answer is to address structural legibility before a transaction is on the horizon. Not in anticipation of a specific deal, but as an ongoing governance discipline — ensuring that the structure continues to reflect the business as it actually operates, that the documentation matches the reality, and that the cryptocurrency layer, if there is one, is properly embedded and describable.
I am sometimes asked what an investor-ready structure looks like. The answer is not a particular configuration of entities or a specific set of jurisdictions. It is a structure that can answer four questions clearly, from its documentation alone, without requiring the owner to be in the room.
Why does each entity exist? Every legal entity in a corporate group should have a role that can be stated in a sentence. Not a complex sentence. A simple one. If the only honest answer is "it was set up for a transaction that never happened" or "we've never been entirely sure," that is a due diligence finding waiting to materialise.
How does money move, and why? The flow of funds between legal entities should follow a logic that is documented in intercompany agreements and reflected in the financial records. The logic does not need to be simple — complex businesses have complex flows. But it needs to be coherent and traceable, with each intercompany transaction grounded in an agreement that explains it.
Who decides what, and where is that recorded? Governance records are the most consistently underdeveloped element of the structures I work with. A decision matrix — even a simple one — that records who is authorised to make which decisions, and a discipline of recording significant decisions and their rationale, transforms what an investor sees. It signals that the business is managed, not just operated.
Where does the cryptocurrency sit, and what framework governs it? If there is a crypto layer, it needs its own description: which entities hold it, under what custody arrangements, within what operational framework, with what connection to the main business model. A brief, clear document that answers these questions removes cryptocurrency from the category of unknowns in due diligence and places it in the category of knowns — manageable, explained, accounted for.
There is a conversation I have had many times. A client is approaching a transaction — a capital raise, a sale, a partnership with a significant counterparty — and has become aware, usually through an early conversation with a potential investor, that the structure is going to be questioned.
At that point, the options narrow considerably. Substantive restructuring during a transaction is slow, expensive, and viewed with suspicion. Documentation created under pressure looks created under pressure. And the investor, who has already begun to form a view of the structure, is watching how the seller responds to scrutiny — which tells them something about how the business has been governed.
I try to have a different conversation, earlier. Before any transaction is in view, the question to ask is: if someone conducted due diligence on this group today, with no prior knowledge and no goodwill toward it, what would they find? What would they be unable to explain? Where would the documentation fail them? Where would the cryptocurrency layer become a source of disproportionate concern?
Those questions, asked honestly and in advance, are almost always answerable. The structural problems they surface are almost always fixable — not quickly, not without effort, but fixable. The same problems, surfaced by an investor's advisers during an active transaction, are considerably harder to manage and considerably more expensive to resolve.
Due diligence tests a structure. The structure, in the end, is something you build. The only question is whether you build it for scrutiny, or wait for scrutiny to reveal what you did not build.
Vladimir Shuvalov is a legal and tax adviser with thirty years of experience in international corporate structuring, banking acceptability, and cryptocurrency architecture.
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