All about the Due Diligence of a Company

Due Diligence is a tool to inspect into the insight of the company’s legal, financial, operational aspects. The literal meaning of Due diligence  shall mean “due care” or “reasonable care”. Due diligence is the process whereby the documents, history, financial data, operational data and legal compliance of applicable laws is checked and reported. It is the inspection of the facts and the documents of the company and background verification of it. It is done to check the authenticity of matter as well as the working of the organization’s transaction of the entity to be acquired or purchased or dealt for whatsoever purpose.

When is Due diligence performed?

The due diligence of a company can be performed in the following cases:-

1. Before the business sale,

2. Private equity investment,

3. Bank loan funding, etc.,

4. Prior to the purchase of a company or investment in a company by the acquirer or investor (“Buyer”)

5. In merger, amalgamation, acquisition or takeover cases.

What all things or documents are inspected in due diligence?

1.       The financial, legal and compliance aspects of the company,

2.       Operational data are usually reviewed and

3.       Such other documents of the company

4.       What is it buying? and

5.       What are the obligations possibly to be assumed?

6.       the nature and extent of the target company’s contingent liabilities,

7.       Problematic contracts,

8.       Litigation risks and intellectual property issues