Due diligence can cover a number of things, but in legal terms it is considered as “the measure of prudence, activity, or assiduity, as is properly expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstance; not measured by any absolute standard but depends on the relative facts of the special case..” which, to be put in another way, due diligence would mean ensuring that you are getting what you think you are paying for. This is especially important for potential acquirers of a business. In a possible merger or acquisition of a corporation, due negligence is a necessary first step, since an intensive investigation can provide vital information and facts relevant to an acquirer to make an informed decision.

Providing the potential buyer every bit of information you have about your company or corporation can save you from a number of lawsuits that he or she can bring once the deal has been made. Hiding problems that is present in the business could put you in danger of facing a lawsuit for fraud, and could potentially kill the deal before it is made. Generally, the potential acquirer would provide a number of questions and possible requests for certain copies of documents that should be answered and given on a given date. Additionally, as a seller, you should also disclose information regarding any issues with tax and audits, insurance claims, filed lawsuits, and other possible liabilities that could affect the acquisition or merger.

Being a seller also makes you responsible for your own due diligence; you have to make sure that the potential acquirer or merger has enough funds for payment, and guarantee that employees are taken care of. There are also many possibilities that could happen after the acquisition or merger – you could become a consultant or possible employee for the new company. Moreover, you should make sure the new business owners have assumed (as part of the deal) the debts that your business has acquired, otherwise you might still be the one who will be legally liable for these debts.


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