What is Due Diligence?

Selling a business: the need for Due Diligence

What is Due Diligence? - see definition here

business due diligence report on business sale, Lawson-West Solicitors, Selling your business

Any buyer will want to carry out a due diligence check. This means they will want to consider every aspect of the business including legal and tax implications, any existing employees, any existing debts and the future of the industry your business is in.

Due Diligence – not just the buyer’s problem

If you are not a company then your buyer will be purchasing the assets but if your business is owned by a company then you will choose to sell either shares or the assets of the company. If you sell shares you are effectively ending the relationship between you and the company.

An asset purchase will have to clearly identify what is and what is not part of the purchase. An asset purchase agreement will tend to include matters relating to employees, stock and equipment. Again warranties will be expected of the seller.

If you are able to provide comprehensive replies to the enquiries raised by your buyer then this will give your buyer confidence in you, in the business and in their purchase - thereby leading to a smoother sale.

  • Good due diligence replies can also be used as a reason to reduce the number of warranties you are asked to give. At this point we would then look to add a letter of disclosure to accompany the warranties to ’iron out’ and clarify any specific matters affecting the given warranties raised in your replies to enquiries.

 Download our Guide to Selling your Business here.