Types of Due Diligence

Due diligence is an important process in all kinds of business transactions, including mergers and acquisitions as well as private equity and venture capital investment, and even initial public offerings. Due diligence is also required for numerous financial transactions, including loans and mortgages. In the process of due diligence it’s essential for businesses to perform thorough checks to avoid unpleasant surprises once the deal has been closed.

There are many kinds of due diligence, and each one requires an approach that is unique. Due diligence can take a variety of forms.

Examining financial records and documents like profit-and-loss statements and balance sheets. Most often, this involves the examination of contracts that relate to tangible assets like equipment and vehicles. It how to choose a virtual data room may also include an examination of the company’s tax situation, to identify any potential tax obligations and opportunities.

Legal due diligence is a review of consolidating legal structures such as ownership agreements, legal structures, and historic and current corporate documents. It’s also important that you consider pending and threatened litigation, as well as any settlements and judgments.

Regulatory due diligence is the process of examining the compliance of the target company with federal laws and regulations particularly in highly regulated sectors like healthcare and finance. This type of due-diligence often includes a review the company’s licenses, permits and regulatory compliance history. It may be accompanied by a review of the company’s compliance with industry standards as well as best practice. In this kind of due diligence it is important to seek out the help of experts or advisory companies.