Due diligence is an investigation into a companies affairs prior to it’s acquisition, disposal or another similar transaction. The aim of due diligence is to get an enhanced understanding of a companies workings and key information to allow a party to make an informed investment decision.
When carrying out the due diligence procedure, 16 things are usually considered:
1. Corporate Structure – i.e. copies of the Companies certificate of incorporation, any change of name along with it’s current memorandum and articles of association.
2. Share capital – Details of issued shared in the company, including the class and denomination of shares and whether they are fully paid up.
3. Accounts – Copies of the companies audited accounts, and directors reports along with all over relevant financial information relating to the company.
4. Finance – Details of any documents relating to overdrafts, loans, credit facilities and any other borrowings of the company.
5. Contracts and Trading – Documents relating to any agreement or contract that the company has entered into.
6. Assets – A list of all assets owned by the company.
7. Intellectual Property Rights – details of all intellectual property rights owned by the company in connection with it’s business.
8. Insurance – Details of any insurance arrangements that the company has in place.
9. Consents and Compliance – Details of all documents relating to all consents required or obtained by the company in connection with it’s business.
10. Litigation & Disputes – Details of any ongoing or threatened litigation.
11. Real Estate – A schedule of all freehold and leasehold properties in connection with the company.
12. Employees – An anonymised list of all employees and directors of the company along with relevant documentation.
13. Pensions – Details of all documents relating to any pension schemes operated by the company.
14. Environment – Details of any activities that are being or have been carried out at properties owned or occupied by the company.
15. Health and Safety – Details of the healthy and safety management system implemented by the company.
16. Tax – Details and documents of the tax affairs of the company.
For a more in depth guide, download a free due diligence checklist which has been prepared by a law firm.