DUE DILIGENCE

DUE DILIGENCE

Due diligence is undertaken prior to a business sale, private equity investment, or bank loan funding, among other things. The financial, legal, and compliance aspects of the organisation are frequently assessed and documented during the due diligence process. Due diligence also includes obtaining sufficient information about a particular business at a particular place and the research behind that should be based on reliable sources so that it eventually helps the client in making better decisions.

KEY ELEMENTS OF DUE DILIGENCE

QUESTIONNNAIRE AND CHECKLIST: A comprehensive questionnaire is required to make the due diligence more effective, therefore getting to know the needs of the target company is the most important as all the steps will depend on this questionnaire.

Due diligence checklist is a method of systematically analysing about the Company that is being considered for purchase through a sale, merger, or other means. One can learn about a company's assets, obligations, contracts, benefits, and potential difficulties by using this checklist. Due diligence checklists usually follow a standard format. They can, however, be altered to suit other businesses.

REPRESENTATIONS AND WARRANTIES: All the representations and warranties should be duly considered while performing the due diligence.

REVIEW: Reviewing of the status is must for performing an effective due diligence as this would help in analysing the impact of the transactions that would be taken in future.

TYPES OF DUE DILIGENCE

LEGAL DUE DILIGENCE

This refers to the legal aspects of a transaction. It searches for any legal stumbling blocks or traps. It typically includes both intra-corporate and inter-corporate transactions.

FINANCIAL DUE DILIGENCE

Financial Due Diligence is performed to assist investors in better understanding and assessing the financial position, uncovering unrecorded liabilities, forecasting future cash flow, and assisting investors in making better decisions.

BUSINESS DUE DILIGENCE

Businesses which are engaged in merging, acquiring or coming together for partnership require due diligence so that any of the process is carried forward in efficient manner and there is no violation of law.

INVESTMENT DUE DILIGENCE

Various businesses engage in investing for expanding their business and in such cases it required to gather all the information pertaining to such investment so that the venture does not suffer from loss in future.

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