Due diligence
Reasonable steps taken by a person or company to satisfy a legal requirement, especially in buying or selling something; a comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential.
It's a critical investigative process before entering into a contract or transaction, ensuring all risks and opportunities are understood.
Word relationships
- Investigation: A general term; 'due diligence' specifically implies a thorough, responsible, and often legally required investigation.
- Scrutiny: Close and critical examination, often part of due diligence.
- Negligence: Failure to take proper care, the opposite of due diligence.
- Oversight: An unintentional failure to notice or do something.
Commonly confused with
- Audit: An audit is a formal examination of financial records, often periodic. Due diligence is a broader, one-time investigation before a specific transaction.
Collocations
- conduct due diligence
- perform due diligence
- financial due diligence
- legal due diligence
- environmental due diligence
Example sentences
- "Before finalizing the acquisition, the buyer conducted extensive due diligence, scrutinizing the target company's financial records, legal contracts, and operational procedures." Describing the M&A process.
- "The company failed to exercise due diligence in ensuring the safety of its products, leading to significant legal penalties." In a legal or regulatory context.
Memory hook
You must do your 'DUE' work with 'DILIGENCE' before a big decision. DUE care, DILIGENCE.
When not to use
Do not use 'due diligence' for casual or minor checks; it implies a thorough, formal, and often legally mandated investigation.
Fun facts
- The concept of due diligence has been around for centuries, but its formal application in business transactions became standardized in the 20th century, especially after securities laws were enacted.
Related words
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