What is due diligence?

Due diligence is the process of investigating a person or company before signing a contract or financial agreement. It is most commonly used in mergers, acquisitions, or corporate takeovers.

Where have you heard of due diligence?

You may have heard companies "conduct due diligence" in major M & A News ". This is an important part of the M & A process and is about reaching or canceling a corporate takeover.

In addition to being used as a commercial term, due diligence is increasingly associated with "conducting research.

Information you need to know about due diligence...

Due diligence was first used in the U.S. Securities Act of 1933, which requires securities dealers and brokers to fulfill their duty to disclose materials related to the securities they sell in order to protect buyers.

The due diligence process primarily involves examining the financial and business documents of a company or individual to ensure that there is no discrepancy between what they claim and their actual business. These include:

• Talk to employees and management committee
• Inspect the business location
• Check the customer list
• Inspect the condition of equipment/facilities
• View all company responsibility documents
• Understand recent or historical litigation

Accountants and lawyers are usually involved in verifying all data.

If a company acquires another company without due diligence, it bears the risk of the other party concealing its responsibilities and financial position.