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Why You Should Use a Virtual Data Room to Improve Your Legal Processes

A virtual or electronic data room is a secure, digital data storage facility hosted by certified data room providers

Virtual data rooms have constantly been gaining immense popularity among different business sectors. That’s because they are irreplaceable when it comes to safe data storage and sharing among business entities and professionals.

Dataroom software allows professionals and businesses to create multiple structures within the data rooms. This way, it becomes easier to deal with different entities simultaneously.

Due to their security and flexibility, data room services are commonly employed by lawyers. Similarly, the corporate sector also uses data rooms to deal with their legal affairs.

Read on to learn how professionals and businesses use a digital data room for legal processes.

What are virtual data rooms?

A virtual or electronic data room is a secure, digital data storage facility hosted by certified data room providers. Virtual data rooms are remotely accessible platforms where professionals and businesses can not only store and share corporate or confidential documents but can keep their communications safe in a controlled environment.

The term “certified data room providers” needs special attention because this is the first and the most important difference between data rooms and other data storage platforms.

A certified data room vendor is the one that fulfills all the cyber security requirements of ISO-27081 and ISO-27001. ISO certification means the vendor follows the latest data security protocols and can be trusted to store sensitive material. That is one of the biggest reasons why the law industry is one of the biggest users of data room software.

How to use virtual data rooms for legal affairs?

Legal due diligence

Due diligence is a legal obligation depending on the state or country where the transaction takes place. For instance, in many countries, due diligence is a legal part while intermediating a real estate transaction. In simple words, the realtors or real estate agencies are bound to perform due diligence before purchasing an asset or facilitating a deal. Similarly, financial and business due diligence is mandatory in mergers and acquisitions.

How to use data room software for due diligence in M&As?

Due diligence is a process in which one business entity analyzes or verifies the financial and business documents of another company during an M&A transaction.

In traditional settings, teams from one company (buyer company) used to visit the business premises of the target company for document verification. However, this process was time-taking, and due diligence could take weeks or months.

Using data room software, the target company can easily upload all the required documents in their preferred hierarchy to organize the data. Authorized individuals from the buyers can be added to the data room, giving them access to all deal-related documents.

Buyers will have 24/7 access to the materials they need for due diligence. The project teams can access documents online from anywhere, anytime. They can request access to any document if necessary. Similarly, buyers can add notes or comments to the documents to seek explanations on affairs.

With data room software communication tools, data room users can arrange meetings with the help of audio/video conferencing features. Data rooms have messengers for private or group chats. Most importantly, buyers can use Q&A modules in VDRs to get answers to their questions.

On the other hand, the target company can protect its data by setting access restrictions. In fact, thanks to the “fence view” mode in data rooms, the administration can restrict the buyers from scanning a document or taking a photo of it.

Litigation

The use of virtual data rooms in the law industry is not something new. Legal advisors, especially corporate lawyers, possess data that must be protected at all costs, and the attorneys may face trials for showing carelessness in protecting such documents.

Virtual data rooms provide lawyers a secure platform where they store legal forms, clients’ data, and other sensitive materials.

Also, data rooms serve as a collaboration channel where lawyers and their clients can communicate or share documents safely.

Lawyers can create legal forms or use templates within the data room (iDeals data rooms have a massive library of legal forms) and get them signed by their clients within the VDR.

Capital raising

Sometimes, companies need to go public to attract investors and shareholders. However, going public means a business has to make every single document (that can affect the decision of investors) public.

These documents may include financial statements, tax records, contracts or agreements made by the company, strategic plans, administration protocols, marketing strategies, etc. This process can take 3-6 months.

The biggest concern for companies at this stage is data security. Here is how virtual data rooms help:

  • Store the necessary documents in the data room and give potential investors or representatives customized access.
  • Protect documents from unauthorized downloads or printing with the help of “fence view” or “view only” features.
  • Use NDA templates in VDRs and ask the potential investors to sign them. NDAs restrict the unauthorized use of data, and culprits can be sued for it.
  • Keep the communication secure and private in the data rooms.

Final words

Virtual data rooms are not just used for simple data storage or sharing. Businesses or professionals use them to deal with legal affairs and processes like due diligence, public finance, capital raising, and litigation because of the hard-to-beat security of data room software.

Read more about online data rooms on dataroom-providers.org.

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