Due diligence

In practice

In a DD, prospective buyers or investors turn a company inside out. This is where everything that has been left undone for years comes to light. Missing shareholder resolutions, unsigned contracts and promises made to early employees surface. A central issue for start-ups is often the chain of title. The company can only use and exploit code, trade marks and designs if it holds the necessary rights. With co-founders, freelancers and agencies, this must be dealt with by contract. For small businesses, DD findings are rarely a deal-breaker. But they push the price down or end up in the contract as a guarantee, an indemnity or a purchase price retention. It can therefore make sense to carry out a thorough review yourself beforehand (a vendor DD, that is, due diligence by the seller). Either way, the effort should not be underestimated. The review can tie up management for weeks.