07 May 2012
“Due diligence” is an analysis and risk assessment of an impending commercial transaction. It is the methodological investigation of a business or persons, or the performance of an act with a certain standard of care to ensure that information is accurate, and to uncover information that may affect the outcome of the transaction.
So it is the process which analyses, with utmost care, the compliance aspect and also the viability of the action to be undertaken.
Say in case of Merger & Acquisition or IPO or ESOP etc.
For Example in an IPO, the due diligence process aspires to achieve the following:
— to assess the reasonableness of historical and projected earnings and cash flows; — to identify key vulnerabilities, risk and opportunities; — to gain an intimate understanding of the company and the market in which the company operates such that the company’s management can anticipate and manage change; — to set in motion the planning for the post-IPO operations.
Guest
Guest
(Expert)
07 May 2012
Dear SIr
What is the significance of due diligence in ESOP? Does the company involve a third party in doing the due diligence for ESOP.
Bcz in MnA or stake sale, both the parties appoints consultants from their side.
07 May 2012
Suppose I am selling shares of company A , describing the benefits of owning those shares, you buy on my word and sooner rather than later the company goes bankrupt. You will be justified in thinking that I duped you. But I may have a vaild defence if I can prove that I did whatever is normally required to be done to collect all information on A and shared those information / inferences from them with you. This defence is called “due dilience” defence in terms of USA’s Securiy Act , 1933. If I have exercised due diligence in my investigations of A and have disclosed to you all my findings , I would not be held liable for for non-discolsure of information not uncovered in my investigation.
Now DD has acquired wider use. It, generally, implies an investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to a sale.
Due diligence refers to the care a reasonable person should take before entering into an agreement or a transaction with another party.
CAclubindia
