Due diligence is a legal requirement. Due diligence is defined as: “Such a measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent man under the particular circumstances; not measured by any absolute standard, but depending on the relative facts of the special case” (Blacks Law Dictionary). What it translates to is another one of the hazy concepts that states that you have the responsibility to take care in entering into a contract to buy, sell, merge business, enter into joint ventures or investments. You should make a prudent effort to be aware of the facts before you commit. Basically, it translates to “require carefulness” and if you don’t do it to the satisfaction of the court it could affect the outcome of any litigation related to the matter. Due diligence in civil procedure is the idea that reasonable investigation is necessary before certain kinds of relief are requested.

Types of Due Diligence Checks

So, due diligence something you must do, but there is no absolute standard to tell you if you’ve satisfied the requirement or not. It is like probable cause, hard to explain, but you know when you have it. But there are things that contribute to the fulfillment of the requirements. For our use here corporate or corporation you can substitute any formal business organization like LLC, “S” or “C” corporations, partnerships and sole propriety business organizations. Following are the basics:
• Corporate Structure and General Matters, i.e., the review of such things as legal structure, organization, capitalization and financial liabilities and other corporate records. Most investigations include a financial review and record review for the last five years. Credit agreements, debts and contingent liabilities are included.
o Incorporation documents filed at the time the business was created.
o Bylaws, policies and procedures make sure that they comply with regulatory and legal requirements.
o Organizational Chart
o List of securities holders or share holders
o Stock options and plans
o Stockholder or member voting agreements
o Warranties
o Stock appreciation rights plans and related grants
o Recapitalization and restructuring documents
o Minutes from board, shareholder, membership (LLC) or executive committee meetings.
o Agreements related to any sales or purchases of businesses.
• Taxes, due diligence explores any historical income tax liabilities and analyzes tax carry forwards and any potential benefits. Verification of paid current taxes, involving all jurisdictions, from municipal, county, state and federal. This removes doubts about any tax problems.
o Federal, state, local and in some circumstances, foreign income, sales and any other taxes returns filed in the last five years.
o Any correspondence or notices from any of the listed tax authorities.
o Annual audits and government audits.
o Agreements of tax sharing and transfer pricing.
o Net operating losses or forward credits
o Settlements with any taxing authority
o Review of 401 (k) planes
• Strategic Fit in merger and acquisitions and analysis of future profitability is as important as current performance.
• Intellectual property
o Patents, copyrights, trademarks, domain names.
o Trade secrets, licenses and their agreements.
o Liens and encumbrances on intellectual property
o Other examples are as simple as customer and client records and lists, have internal value as well.
• Material Assets
o Inventory of stock
o Real Estate
o Equipment
o Fleet assets
o Technology
o Research and development projects
• Contracts and commitments
o Customer and supplier contracts
o Receivables and payables
o Guaranties, loans and credit agreements.
o Leases, equipment, vehicles, office etc.
o Non-compete, most favored nation and exclusivity agreements
o Settlement agreements
o Licensing agreements
o Distribution, dealers and sales agency or advertising agreements.
o Franchising agreements.
o Labor contracts and agreements
• Employees and Management: Employees and management personnel may constitute a ‘key resource’. A review of employment contracts, benefits and policies. Buyers must in a general way analyze which employees with stay after the merger or acquisition. Evaluation of past labor issues or potential future problems.
• Litigation: is the company involved in litigation and what, if any, potential legal liabilities. Any pending threatened or settled litigation, arbitration or regulatory proceedings involving the target company.
• Regulatory compliance issues, at least you must consider any antitrust implications of M&A transaction.

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There is more and other items vary according to circumstances, basically under due diligence you are to establish trust and fulfill any legal obligation or responsibility. The above list is primarily for business mergers and acquisitions, but there are steps you need to take in any contract or investment. Advanced Private Investigator & Security of Miami FL
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