When purchasing or investing in a business, it is imperative that the buyer conduct due diligence prior to entering into the purchase agreement to evaluate the assets and liabilities of the business and to determine whether any undisclosed liabilities exist.
Depending on the nature of the business, the purchaser should, without limitation, conduct the following due diligence:
- inspect the financial records
- review any lease agreements
- review contracts with third parties
- interview key employees
- rights to intellectual property
- titles to assets
- if any potential or pending litigation exists
- review insurance policies
- review of employment records
- review of tax returns and tax-related documents
Conducting extensive due diligence prior to the purchase of the business may significantly reduce the risk of post-sale litigation.