Due Diligence When Buying a Company: What Gets Reviewed
Buying a company without due diligence is like buying a property without visiting it or checking the paperwork. The legal audit that precedes the deal exists to reveal what is not in plain sight — before it becomes your problem.
What due diligence is
Due diligence is the detailed investigation carried out before a company is bought, sold, or takes on an investor. Its purpose is to map risks, hidden liabilities, and contingencies that could affect the value of the business or the security of the transaction.
What gets reviewed
Legal due diligence usually spans several fronts:
- Corporate: the company's structure, its ownership, agreements, and any disputes among partners;
- Contractual: key contracts, change-of-control clauses, and outstanding obligations;
- Tax: tax compliance, debts, installment plans, and the risk of assessments;
- Labor: lawsuits, liabilities, and compliance with the law;
- Regulatory and environmental: licenses, permits, and sector-specific obligations.
Why it protects the buyer
Without due diligence, the buyer may inherit debts and lawsuits that surface only after closing. With it, the buyer can renegotiate the price, require contractual guarantees, condition the purchase on resolving outstanding issues, or, in extreme cases, walk away from the deal in time.
Due diligence is for SMEs too
The audit is not the exclusive domain of large transactions. In small and medium-sized enterprises, it can be conducted with the same rigor, scaled to the size and budget — and it is precisely in these deals that a hidden surprise tends to have a proportionally greater impact.
Frequently asked questions
Who pays for due diligence?
Generally the buyer or the investor, as the party who needs to assess the risks. The terms, however, are defined in the negotiation of each deal.
How long does due diligence take?
It depends on the size and complexity of the company. It can range from a few weeks to several months. Good initial planning helps set the timeline.
Need guidance on this topic?
This article is informational. For guidance on your specific case, talk to our team.