Types of Due Diligence
The phrase “due diligence” may not get your heart going, but it is an essential business procedure when selling or purchasing companies. It is the process of examining all aspects of the company to ensure that all involved parties have a clear understanding of the deal they’re about to enter into.
The process can take between 30 and 60 days, but it should be started as soon as you can to avoid misunderstandings or legal consequences. Companies must prepare for the process by establishing the document library that contains all relevant documents and records. This will save time and money during the actual investigation.
There are various types of due diligence, based on the type of deal and company. Here are a few of the most commonly used:
Legal Due Diligence
This type of due diligence investigates the possibility of any liabilities that could hinder the final outcome of a transaction. It typically includes carefully examining all of the contracts that are essential to the transaction that include licensing agreements, partnership agreements and term sheets, as well as loans and bank financing agreements.
Commercial Due Diligence
This includes analyzing the market of the company in terms of its size, growth and competition. It could also involve interviews with customers, evaluating competitors and creating a fuller analysis of the strengths and weaknesses of the company.
This kind of due diligence investigates all the details available about an upcoming case, which includes any evidence that could be used against an accused individual. It also requires an evaluation of all the evidence that is available. This is what a prosecutor will do when considering whether to press charges against someone.
