Attorney at Law

Due Diligence

Lia Kopin-Green
December 14, 2022

What is Due Diligence?

In business law terms, due diligence refers to the process by which a company thoroughly investigates another company for the purpose of a business transaction such as an investment or acquisition. The main goal of due diligence is to disclose important information about a company as well as its potential legal liabilities. It is an important step in ensuring that certain business transactions are beneficial. Due diligence can be conducted on both legal and financial aspects of a company and is typically carried out by reviewing documents, interviewing employees, and researching the company’s intellectual property

Key Takeaways

  • Due diligence is the process by which a company reviews documentation and other details about another company for the purpose of an investment or acquisition.
  • Legal due diligence investigations may include intellectual property research, review of financial documents, and other key types of business due diligence. 
  • In some cases, due diligence may be applied in other contexts such as conducting background checks on potential new employees.
  • Due diligence can be divided into two main categories: hard due diligence and soft due diligence.

Hard vs Soft Due Diligence

Despite the fact that all due diligence procedures strive to uncover critical information about a company, there are many different ways in which the process can be conducted. In general, there are two main types of due diligence procedures: hard due diligence and soft due diligence. Differentiating between these two methods is an essential part of understanding due diligence in business law. 

Hard due diligence shines a spotlight on important numbers and data about a company found on financial documents such as income statements and balance sheets. While conducting hard due diligence, financial elements are examined in order to get a clear picture of a business’s financial status and make predictions for the company’s future. Those performing hard due diligence may also take a look at a company’s employment agreements, business model strategies and marketing plans.

Alternatively, soft due diligence takes a qualitative approach and focuses on factors such as a company’s management style, corporate culture and the loyalty of the business’s customers. While quantitative data can provide essential insight about a company, soft due diligence should not be overlooked. Simply put, soft due diligence aims to fill in the gaps that numbers simply cannot measure. According to a recent Harvard Business Review study, when merger and acquisition transactions fail, most of them do so due to a lack of consideration of important human elements.

Bottom Line

When it comes to any major business transaction, due diligence should not be overlooked. While in most cases due diligence is not technically required by law, it is highly recommended as it can provide valuable insight about a business. Moreover, it cultivates a comfortable environment and promotes awareness between the relevant parties in a number of important business deals. It should be noted, however, that it can be quite challenging to navigate the due diligence process. A licensed business attorney will ensure the procedure is carried out lawfully and efficiently. Contact a specialized business attorney today with Attorney At Law.

Ask a Lawyer

Ask your own question and get advice from expert attorneys
Ask Question

Featured Business Law Lawyers

Edmondson & Associates

51 years in practice
Auto Accidents, Business Law, Personal Injury
View Profile

Sumita Nagpal, PLC

19 years in practice
Bankruptcy, Business Law
View Profile

The Law Office of Zachary Zawarski

13 years in practice
Bankruptcy, Business Law, Employment Law
View Profile

D&O Law Group, LLC

15 years in practice
Criminal Defense, Divorce & Family Law, DUI Law, Personal Injury
View Profile

Law Offices of Ricardo J. Mauro, P.C.

29 years in practice
Auto Accidents, Personal Injury
View Profile

Law Offices of Robert F. Julian

47 years in practice
Auto Accidents, Construction Injury, Personal Injury, Wrongful Death
View Profile


Are you looking for an attorney? Do you have questions about a legal case you are facing? Contact us now and we will put you in touch with a lawyer for free.

Related Posts

Partnership Agreement
Lia Kopin-GreenJanuary 8, 2023
Lia Kopin-GreenDecember 11, 2022
Certificate of Incorporation
Lia Kopin-GreenDecember 1, 2022
Non-Disclosure Agreement (NDA)
Lia Kopin-GreenSeptember 15, 2022
Attorney At Law is changing how clients connect with lawyers. By providing an innovative platform to lawyers who want to expand their practice’s reach, AAL is bringing law practices into the future.
6142 Innovation Way
Carlsbad, California 92009
Some of the content of this website may be considered attorney advertising under the rules of certain jurisdictions. The information on this website is for general information purposes only. Nothing on this site should be taken as legal advice for any individual case or situation. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship.
crossmenuchevron-upchevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram