Due Diligence

Due diligence is a general legal term that refers to a reasonable investigation and research before making a decision. It implies the use of ordinary care in determining a course of action. Due diligence is also used as a noun to connote a corporate investigation that proceeds the launching of a major business activity. For example, one company thinking of acquiring another may conduct a “due diligence,” which means an investigation into all the business ramifications of the proposed acquisition. Due diligence investigations usually include comprehensive economic appraisals, risk analyses, document checks, interviews of key personnel and other investigative steps.

Failing to conduct an appropriate due diligence before undertaking a business activity may be considered a violation of the duty of care owed by corporate managers to their shareholders.