Corporate and Commercial: What is due diligence in the context of a business sale?

When selling a business, there is no legal requirements for the seller to disclose any issues or liabilities to the buyer. The buyer can ask questions and request information about the business, which is known as due diligence and forms an important part of the process of buying a business.

The answers and information provided by the seller allows the buyer to know more about the business and so be in a position to  make an informed decision about the transaction. They also help to inform what warranties and indemnities the buyer might want to seek in the legal transaction documents to protect itself, and any actions it needs to take (such as conversations with landlords, suppliers and other key third parties).

Due diligence can cover legal, financial, commercial, tax and other areas depending upon the size and nature of the business in question, as well as the buyer’s attitude to risk.