Before a buyer signs, a due diligence review tests the assumptions behind the price. It is a structured check of the target's legal, financial and operational position, carried out so that the buyer knows what it is acquiring and the seller can answer questions early.

What due diligence covers

The scope depends on the deal, but most reviews follow the same outline. Counsel requests documents, reads them, asks follow-up questions and reports the findings in a form the decision makers can use.

• Corporate records: constitutional documents, shareholder registers and board approvals.

• Contracts: customer, supplier, lease and financing agreements, with attention to change of control clauses.

• Employment: contracts, benefits, pending claims and key staff arrangements.

• Property and intellectual property: ownership, registrations and licences.

• Disputes and compliance: litigation, regulatory notices and licences to operate.

Why it matters for the deal

Findings feed directly into negotiation. A hidden liability can lower the price, create a special indemnity, delay completion or end the transaction. A clean report gives the buyer confidence and gives the seller a stronger position on warranties.

Preparing as a seller

Sellers who prepare a tidy data room usually close faster. Collect signed copies, resolve missing approvals and list known issues with an explanation. Surprises discovered late cost more trust than problems disclosed early.

A practical timeline

• Week 1: agree the scope, confidentiality terms and document list.

• Weeks 2 and 3: document review and management questions.

• Week 4: draft report, discussion of red flags and proposed protections.

• Week 5: final report feeds the purchase agreement.

Common mistakes

Treating the exercise as a formality, starting too late, or reviewing documents without asking how the business actually runs. Numbers and contracts show the surface; conversations with management show the practice.

When to involve counsel

Bring counsel in before a letter of intent is signed, so that exclusivity, timing and conditions reflect the review you will need. This sample article gives general information only and is not advice on a particular transaction.