Due Diligence

Due diligence is a process where parties to a transaction, as well as their lawyers and accountants, review legal and financial documents relevant to the transaction prior to the finalization of a deal. For example, in the sale of a company, the seller will make pre-signing representations and warranties about the current financial health and contractual relationships of the company in order to arrive at a tentative agreement before revealing confidential information to potential buyers. Due diligence is necessary to confirm that those representations and warranties are correct, or if not, whether a change in the deal terms or termination of the deal is triggered.