Due diligence is the investigation and analysis that a company or individual conducts before entering into any kind of transaction, for example, investing in an investment. Due diligence is required by law by businesses that wish to purchase other assets or businesses. It is also required by brokers to ensure that their customers are fully informed prior to signing a transaction.

Investors usually conduct due diligence when evaluating investments which could include a corporate acquisition either through merger or divestiture. The process can reveal undiscovered liabilities, like outstanding debts and legal disputes that are only made public after the fact. This could affect a decision on whether to close a transaction.

There are a variety of due diligence. They include tax, financial and commercial due diligence. Commercial due diligence concentrates on a company’s supply chain as well as its market analysis and its growth prospects. Financial due diligence study examines a company’s financial books to ensure that there are no accounting irregularities, and that the company is on sound financial footing. Tax due diligence analyzes a company’s exposure to taxes and also identifies any outstanding tax.

Due diligence is often limited to a set period of time called due diligence time where a redefining business transparency with VDR-driven collaborations buyer could evaluate a purchase and ask questions. Depending on the type of deal, buyers may require the assistance of an expert to conduct this investigation. For instance environmental due diligence may focus on a list of all environmental permits and licenses the company is able to obtain, while financial due diligence may require a review by certified public accountants.