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Simple English definitions for legal terms
due diligence
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A quick definition of due diligence:
Term: Due diligence
Definition: Due diligence means being careful and paying attention to something so that you don't get in trouble later. For example, if you want to buy a company, you need to do due diligence to make sure everything is okay with the company. This means checking all the important information and making sure it's true. It's like doing your homework before you buy something or make an important decision.
A more thorough explanation:
Due diligence is the care and attention given to a matter to avoid legal liability. It is not an exhaustive investigation, but rather a reasonable effort to verify information and facts. For example, in a securities offering, parties can avoid fraud liability if they conduct due diligence on the issuer.
When conducting due diligence, audited financial statements are reviewed, and other reasonable investigations are conducted. Due diligence can also refer to investigating a company before a merger or acquisition.
For instance, if a company is considering buying another company, they will conduct due diligence to verify the financial information provided by the seller. This process helps the buyer avoid any potential legal or financial issues that may arise after the acquisition.
In summary, due diligence is a necessary process to ensure that all relevant facts and financial information are verified before making any investment or business decisions.