Due diligence checklists are standardized lists of questions and document requests used to investigate the viability of a transaction. They are industry-specific and ensure that all relevant topics have been thoroughly investigated. They are commonly used in corporate mergers, acquisitions, and commercial real estate transactions.
Due diligence checklists are standardized lists of questions and requests for documents designed to fully check the viability of an opportunity before a transaction is completed. These checklists will require a party to produce situationally appropriate information that differs by industry. In all cases, however, this type of checklist will be used as an investigative tool to establish a contracting party’s efforts to uncover any information relevant to the decision-making process.
The requirement that a party demonstrate that it has exercised due care in completing a transaction has its roots in contract law. The courts will find that a written contract represents the full intention of the parties and any dispute will be resolved by putting the words on paper. If a party wishes to claim fraud or improper trading to void the transaction, the court expects the party to demonstrate that it has done all it reasonably could have done to identify the fraudulent nature of the opportunity and the pitfalls of the trader.
As a result, due diligence checklists have become a popular way to ensure and demonstrate that every topic relevant to a transaction has been thoroughly investigated. If there was any fraud or improper dealing, it wasn’t the fault of the injured party who failed to figure it out. He conducted due diligence and did everything possible to establish the legitimacy of the transaction.
Checklists tend to be standardized by the industry so that salespeople can simply scroll through a list and supply the information indicated. Buyers can just check the listing to make sure everything is expected in a smooth transaction. This way, the process doesn’t have to be customized for each individual transaction.
Due diligence is an integral part of corporate mergers and acquisitions as well as commercial real estate transactions. When a business is sold or merged with another business, it will need to provide a comprehensive amount of information to demonstrate the financial condition of the business and document the status of existing relationships. Typical due diligence checklists will request information not only from the business but also from major owners and key employees.
In commercial real estate transactions, sellers are typically required to disclose a wide variety of information related to environmental issues, technical specifications, regulatory compliance, and title status of the property, among other things. Due diligence checklists are used to ensure that whoever you send to complete the transaction knows what information to collect for review. Likewise, it gives the seller advance notice of the information that will be needed to complete the transaction so they can prepare ahead of time.
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