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Due diligence is a crucial process in all kinds of business deals, such as mergers and acquisitions, private equity or venture capital investments and initial public offerings. Due diligence is also required in many financial transactions, like mortgages and loans. During the due diligence stage it is essential that companies perform thorough checks to avoid unpleasant surprises once the deal has been closed.
There are many kinds of due diligence and each requires a specific approach. Due diligence comes in many forms.
Review of financial documents and records, such as profit-and-loss reports and balance sheets. This often includes an examination contracts relating to tangible assets, like cars and equipment. It could also involve an examination of a company’s tax status in order to determine any tax obligations and opportunities.
Legal due diligence consists of reviewing the firm’s consolidated legal structures, ownership arrangements and the most current and old corporate documents. It’s important to take into account pending and potential litigation and any settlements or judgments.
The term “Regulatory Due Diligence” refers to the process of assessing the compliance of a potential company with government regulations and laws. This is especially important in sectors that are highly regulated such as finance or healthcare. This type of due diligence usually involves reviewing the company’s permits, licenses, and the history of regulatory compliance. It may also include a check of the company’s compliance with industry standards as well as best practices. For this kind of due-diligence it is important to seek advice from experts or advisory firms.