Due Diligence

It is the process by which confidential legal, financial and other material information is exchanged, received and appraised by a parties to a business transaction, which is done prior to the transaction

Due diligence is an analysis and risk assessment of an impending business transactions. It is careful and methodological investigation of a business or persons or the performance of an art with certain standard of care to ensure that the information is accurate and to uncover the information that may affect the outcome of the transaction

It is basically a background check to make sure that the parties to the transactions have the required information they used to proceed with the transactions. It is used to investigate and evaluate a business opportunities. It is a tool that often provides insights into the hidden facts.

Objective of Due Diligence

The objective of due diligence is to verify the strategic identification or attractiveness of the target company, valuation risk associated etc. the major objectives of the due diligence are :

  1. Collect material information from the target company
  2. Conduct swot analysis
  3. Improve bargaining position depending on the result
  4. To take a informed decisions about the investments
  5. Identification of areas where representation and warranties are required
  6. To provide a desired comfort level in the transactions
  7. To ensure complete and accurate disclosure
  8. To bridge the gap between the existing and expected
  9. To take smooth/accurate action/decision
  10. To enhance the confidence of the stakeholder

Process of Due Diligence

A legal due diligence investigation takes place in three stages.

  • Preparation
  • Investigation
  • Results

The most time-consuming part of the process is the investigation or the gathering of facts.


This stage of the legal due diligence is to set goals and priorities. Often there is one central goal or multiple smaller important goals that stand out from the rest. Legal due diligence investigation are often limited by time and budget pressures. It’s important to prioritize what information is most important.


During the investigation a lawyer or team of lawyers collect facts and documents. The findings will allow them to formulate a legal opinion as to whether the sale or purchase is worthwhile. There are many parts to the investigation.

Establish the Big Picture. This comes back to the goal of the investigation. It’s important to formulate the investigation around the central question or goal. This is also a good time to help the investigating lawyer understand the broad overview of your company.

Provide Documents and Interviews. The list of documents and interviews necessary for a legal due diligence investigation will likely surprise you with its length. The list of documents requested will likely be more documents than are actually necessary. The lawyer’s job is to create a full picture, which means being thorough in gathering information. Consider making one of your c-level officers available to answer questions. Interviews are an efficient way to gather information.


The results of a legal due diligence investigation are reviled at the end of the investigation. In the results, the lawyer will present the data in as concise way as possible. The lawyer will also present a results summary which will point out the most important discoveries.

The results may also provide analysis or opinion. The lawyer may offer an opinion as to the validity of the sale or purchase.

The results may be provided in written format or verbal conversation. This depends upon the size of the investigation and the preference of the lawyer and the client.

Presentation of Legal Due Diligence Investigation Findings

The findings of a legal due diligence investigation are really only important to a buyer and the buyer’s counsel.

The buyer will typically want the due diligence finding to be presented in a compact and user-friendly way. The presentation can take many forms:

Verbal conversation: This is a great method for small deals or a buyer who is concerned about cost.

Memorandum: This memorandum can greatly range in length and depth. For larger deals, the written document will be longer.

Whichever form it takes, the presentation of the legal due diligence investigation findings should describe all of the reviewed documents, analysis of key issues discovered, and make recommendations as to a solution to presented issues.

If you are having a due diligence investigation performed, be clear with your expectations. Be specific on how you would like information and issues presented to you at the end of the legal due diligence investigation.

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