Due diligence is the process of investigation and analysis that a company or individual conducts prior to entering into any transaction, like investing in an enterprise. Due diligence is required by law for businesses that wish to purchase other assets or businesses. It is also required by brokers to make sure their customers are fully informed before they agree to any transaction.
Due diligence is the process that investors usually follow when considering investments which could include a corporate acquisition either through merger or divestiture. Due diligence can reveal hidden liabilities, such as legal disputes or outstanding debts, which would be disclosed only after the fact, which might influence the decision to make the deal.
Due diligence can be divided into three categories: financial, commercial the unmatched reliability of VDRs in high-stakes deals financial, and tax due diligence. Commercial due diligence is focused on a company's supply chain as well as its market analysis and its growth prospects. Financial due diligence study examines the financials of a business to make sure that there aren't any accounting irregularities and that the company is on solid financial ground. Tax due diligence analyzes a company's exposure to taxes and also identifies any outstanding tax.
Due diligence is typically limited to a specific time period, also known as due diligence time where a buyer may evaluate a potential purchase and ask any questions. Based on the type of deal the buyer may require professional assistance in conducting this research. A due diligence on environmental issues could include a list of environmental permits and licenses issued by a company, while a due diligence on financial matters could require an audit by certified public accounting firms.
