The term Due Diligence was first given a legal meaning by the US Securities Act of 1933.
Under the Act a broker could claim that the carrying out of a ‘Due Diligence’’ investigation was a defence against any allegations that material facts had not been disclosed to a potential investor in a business.
Although due diligence remains an important tool in researching potential investment opportunities, it is also basic common sense to carry out checks on any possible business contacts.
Through obtaining due diligence reports, companies can have access to information about who owns and manages companies, what other interests they have, whether they are what they say that they are and whether there are any ‘red flags’ that should be taken into account before deciding whether or not to proceed with a transaction or business relationship.
Through obtaining Due Diligence reports, companies, advisors and investors can show that they have exercised a duty of care in their business transactions.