Types of Due Diligence

Due Diligence is a business term for an investigation into a practice, entity or person in order to uncover details about management, finances, performance, history and other subjects. There are several types of due diligence, and every case is handled differently depending on the practice, entity or person.

Corporate Due Diligence Investigation

The most common form of due diligence is when a company intends to buy another company, in the form of a merger, privatization or similar corporate transaction. An investigator will research the company, and provide details of the other company that is part to the transaction. Financial records are used to determine the state of the business and determine if it will help or hurt your company by become a part of it. Review a list of all labor and supply contracts the company is currently involved in with third parties, and then decide if you would like to continue these contracts. Copies of all federal, state and local tax records, a complete list of the company’s intellectual property holdings and real estate and personal corporate property are also needed to perform a corporate due diligence investigation.

Civil Litigation

Civil litigation is a type of due diligence that is necessary before certain types of relief can be granted. For example, a person wishing to file bankruptcy much have his attorney engage in due diligence to make sure that the representations in the bankruptcy petition are accurate. Due diligences are also used to determine if a party has a legitimate reason for taking legal action.

Human Rights Abuse

One May 25th, 2011 the Organisation for Economic Co-operation and Development member countries revised their guidelines to promote tougher standards of corporate behavior. These decisions included human rights and use a new type of due diligence that requires corporations to conduct investigations of third-party partners for potential human rights abuse. This type of due diligence seeks to prevent or mitigate adverse human rights impacts that are directly a result of their business operations.

Philanthropic Due Diligence

The term “due diligence” in the realm of philanthropy is referring to the process through which a funder or investor researches an organization in order to make a beneficial investment or grantmaking decision. Much like the decision to merge companies, this decision is based upon the analysis of objective data, the state of the general healthy and stability of the company, and intuition. Philanthropic due diligence is purposed to seek the truth about an organization before providing that organization with funds.

Due diligence is used in criminal law as the only defense to a crime that is of strict liability. Once the offence is proven, the due diligence report can be used by the defendant to prove that they did everything possible to prevent the crime from happening.