Due dilligence

A legal audit or due diligence started to be used in connection with foreign investors' entry into the Czech Republic where this term designated performance of an in-depth and complex examination of a company in connection with a planned transaction, most frequently a sale or a purchase.

The requirement for performance of legal due diligence is made from the side of an investor mainly during preparation of acquisitions, prior to purchase or sale of real estate (e. g. plots of land) or for the purpose of identifying potential risks which may be hidden or associated with the planned transaction. Due diligence is also an important tool for determining a purchase or a sale price and formulating contractual guarantees.

What is the objective?

The main objective and of course also benefit which performance of due diligence pursues is to define potential risks in execution of the relevant business transaction or in the existing method of business activities management (including definition of potential responsibility), to formulate precise recommendations in accordance with applicable law, or possibly also to state a method how to eliminate the identified risks and adopt recommendations or specific processes for prevention of their occurrence in future.

If a certain business transaction is examined, a report on due diligence conclusions can be suitably supplemented with a schedule of procedure in such transaction which may at the same time serve as a business transaction plan and especially as subsequent verification of the correctness of its performance and achievement of the planned result.

The scope and depth of due diligence depend on the size of the planned investment.

Most frequent uses