Due diligence clause: Copy, customize, and use instantly
Introduction
A due diligence clause outlines the responsibility of a party to investigate, assess, or verify information related to the other party, assets, or business involved in the agreement. It ensures that the party performing due diligence has the right to gather necessary information to make informed decisions and mitigate risks before proceeding with the agreement or transaction.
Below are templates for due diligence clauses tailored to different scenarios. Copy, customize, and insert them into your agreement.
General due diligence obligation
This variation is used when one party is required to conduct a general investigation into the other party or assets before entering into the agreement.
The party conducting due diligence agrees to use reasonable efforts to investigate and evaluate the other party’s financial, operational, legal, and business conditions. The results of this due diligence investigation shall be taken into account before proceeding with the execution of this Agreement.
Due diligence for financial review
This variation applies when due diligence is focused on assessing the financial condition of the other party.
The buyer agrees to conduct due diligence, including reviewing the seller's financial statements, tax records, liabilities, and other financial documents, to assess the financial health and risks associated with entering into this Agreement.
Due diligence for legal compliance
This variation applies when the party performing due diligence must verify the legal status and compliance of the other party with applicable laws and regulations.
The buyer agrees to conduct due diligence to verify that the seller is in compliance with all applicable laws, regulations, permits, and licenses required for the conduct of its business, and to identify any potential legal risks related to this Agreement.
Due diligence for intellectual property rights
This variation applies when due diligence focuses on verifying the intellectual property rights and ownership held by one party.
The buyer agrees to conduct due diligence to verify that the seller has valid ownership or rights to use the intellectual property associated with this Agreement. The buyer will review all intellectual property documentation, licenses, and agreements to confirm the scope and validity of the intellectual property rights.
Due diligence for environmental review
This variation is used when the due diligence process focuses on assessing environmental risks and compliance with environmental regulations.
The buyer agrees to conduct due diligence to assess the seller’s compliance with environmental laws and regulations. This includes reviewing any environmental audits, reports, and any history of environmental violations or liabilities associated with the seller's business operations.
Due diligence for regulatory compliance
This variation is used when one party must verify that the other party is complying with industry-specific regulations before proceeding.
The buyer agrees to conduct due diligence to verify that the seller complies with all industry-specific regulations, including those related to data protection, product safety, and environmental standards, to mitigate any risks of regulatory non-compliance.
Due diligence for customer and supplier relationships
This variation is used when the due diligence process includes assessing the status and stability of the target party's customer and supplier relationships.
The buyer agrees to conduct due diligence on the seller’s customer and supplier relationships, including reviewing key contracts, terms, and the stability of these relationships, to ensure that there are no risks that may affect the business’s ongoing operations.
Due diligence for contract obligations and liabilities
This variation applies when the due diligence process involves reviewing the target party’s contractual obligations and liabilities.
The buyer agrees to conduct due diligence to assess the seller's contractual obligations, liabilities, and any pending legal disputes or claims that may impact the viability or value of this Agreement, and to evaluate the terms of any significant agreements the seller has entered into.
Due diligence for operational review
This variation is used when due diligence focuses on reviewing the operational structure and processes of the other party.
The buyer agrees to conduct due diligence by reviewing the operational aspects of the seller’s business, including management structures, processes, systems, and any operational risks or inefficiencies that could impact the business’s value or performance.
Due diligence for employee and labor issues
This variation applies when due diligence includes a review of the target party’s employee-related matters, such as workforce stability and legal compliance.
The buyer agrees to conduct due diligence to assess the seller’s employee and labor-related issues, including reviewing employment contracts, employee benefits, labor union relationships, and any labor disputes or risks that may affect the seller’s business operations.
Due diligence for technology and systems
This variation is used when due diligence focuses on assessing the technology infrastructure, intellectual property, and systems used by the target party.
The buyer agrees to conduct due diligence by reviewing the seller’s technology infrastructure, systems, software, and IT security measures to identify any potential risks, gaps, or vulnerabilities that could impact the business’s operational effectiveness or security.
Due diligence for real estate and property
This variation is used when the due diligence process includes reviewing the target party’s real estate holdings or leased properties.
The buyer agrees to conduct due diligence by reviewing the seller’s real estate holdings, leases, and any potential encumbrances or liabilities related to the properties, to ensure that there are no hidden risks that could affect the business’s assets or liabilities.
Due diligence for transaction-related expenses
This variation applies when due diligence includes evaluating the potential costs and expenses related to completing the transaction.
The buyer agrees to conduct due diligence to assess all costs, fees, and expenses associated with completing the transaction, including legal, accounting, and advisory fees, and to ensure that there are no unexpected financial burdens related to the transaction process.
Due diligence for past and future litigation
This variation applies when due diligence involves assessing the risk of ongoing or potential litigation.
The buyer agrees to conduct due diligence by reviewing any past, ongoing, or potential litigation or legal disputes involving the seller, including any risks or liabilities that could impact the business or the value of the transaction.
Due diligence for material adverse changes
This variation applies when the due diligence process includes assessing any material adverse changes in the target party’s business since the last financial reporting or business evaluation.
The buyer agrees to conduct due diligence to identify any material adverse changes in the seller’s business, financial condition, operations, or liabilities that have occurred since the most recent financial reporting or business evaluation.
Due diligence for product or service quality
This variation applies when the due diligence process includes assessing the quality of the target party’s products or services.
The buyer agrees to conduct due diligence by evaluating the quality, safety, and market reputation of the seller’s products or services, including reviewing product testing, customer feedback, and any history of defects or recalls that may affect the business’s value or reputation.
Due diligence for financial history and forecasts
This variation is used when the due diligence process focuses on reviewing the financial performance and projections of the target party.
The buyer agrees to conduct due diligence by reviewing the seller’s financial history, including audited financial statements, tax filings, and financial projections, to assess the financial health of the business and identify any risks or red flags in the financial performance.
Due diligence for intellectual property litigation
This variation applies when due diligence includes assessing any ongoing or potential intellectual property-related litigation.
The buyer agrees to conduct due diligence to evaluate any ongoing or potential litigation related to the seller’s intellectual property, including reviewing infringement claims, licensing disputes, and any potential risks to the seller’s IP portfolio.
Due diligence for customer satisfaction
This variation is used when one party must verify the satisfaction levels of the other party’s customers to assess any potential risks in customer relationships or service delivery.
The buyer agrees to conduct due diligence by assessing the seller’s customer satisfaction levels, including reviewing customer feedback, complaints, and ratings, to evaluate any risks related to product or service quality and customer retention.
Due diligence for business continuity plans
This variation applies when one party needs to assess the other party’s readiness and ability to continue operations in the event of disruptions or emergencies.
The buyer agrees to conduct due diligence by reviewing the seller’s business continuity and disaster recovery plans, including evaluating the seller’s preparedness for unexpected events and disruptions that may impact business operations.
Due diligence for compliance with industry standards
This variation is used when due diligence focuses on verifying the other party’s compliance with relevant industry standards or certifications, ensuring the business operates within acceptable practices.
The buyer agrees to conduct due diligence to verify that the seller complies with all relevant industry standards, certifications, and best practices, ensuring that the seller’s operations meet regulatory and quality requirements.
Due diligence for tax compliance
This variation applies when the party performing due diligence must verify the target party’s tax compliance, including reviewing tax filings, liabilities, and any risks related to tax obligations.
The buyer agrees to conduct due diligence to verify the seller’s compliance with tax laws, including reviewing tax returns, outstanding liabilities, audits, and any potential tax disputes or penalties that could affect the transaction.
Due diligence for key supplier agreements
This variation applies when one party needs to review the other party’s agreements with key suppliers, assessing the risks and stability of these relationships.
The buyer agrees to conduct due diligence by reviewing key supplier agreements, including assessing the stability and reliability of suppliers, pricing terms, and any risks associated with reliance on a limited number of suppliers for critical goods or services.
Due diligence for debt and liabilities review
This variation applies when due diligence is focused on reviewing the target party’s outstanding debts, financial liabilities, and credit arrangements, which may impact the business’s financial position.
The buyer agrees to conduct due diligence to assess the seller’s outstanding debts, liabilities, and credit arrangements, including reviewing loan agreements, bonds, guarantees, and other financial obligations that may affect the business’s financial position.
Due diligence for market position and competition
This variation is used when one party must evaluate the other party’s competitive position in the market to understand the risks and opportunities associated with the business’s market performance.
The buyer agrees to conduct due diligence by reviewing the seller’s market position, competitive landscape, and industry trends, including assessing the seller’s market share, competitive advantages, and risks from emerging competitors.
Due diligence for board governance and management structure
This variation applies when one party must assess the target party’s governance structure and management team to evaluate their ability to lead the business and make strategic decisions.
The buyer agrees to conduct due diligence to assess the governance structure and effectiveness of the seller’s board of directors and senior management team, including evaluating their experience, decision-making processes, and alignment with the business’s goals.
Due diligence for ownership of assets
This variation is used when one party must verify the ownership of all assets involved in the transaction to ensure there are no disputes over ownership rights.
The buyer agrees to conduct due diligence to verify the seller’s ownership of all assets included in the transaction, including reviewing titles, deeds, patents, trademarks, and other intellectual property to confirm ownership and avoid disputes.
Due diligence for the status of litigation claims
This variation applies when due diligence involves reviewing any existing or potential legal claims against the other party, which may affect the value or operations of the business.
The buyer agrees to conduct due diligence by reviewing the status of any ongoing litigation claims against the seller, including potential liabilities, legal fees, and the likelihood of settlement or adverse judgments that may impact the transaction.
Due diligence for cybersecurity measures
This variation applies when the party performing due diligence must evaluate the other party’s cybersecurity infrastructure to ensure data protection and safeguard against cyber threats.
The buyer agrees to conduct due diligence to assess the seller’s cybersecurity policies, procedures, and infrastructure, including reviewing the seller’s track record in preventing data breaches, securing customer data, and mitigating cyber threats.
Due diligence for operational inefficiencies
This variation applies when due diligence includes identifying inefficiencies in the target party’s operations, which may affect its profitability or long-term sustainability.
The buyer agrees to conduct due diligence by evaluating the seller’s operational efficiency, including identifying any areas of inefficiency, excessive costs, or process bottlenecks that may affect the performance or value of the business.
Due diligence for employee turnover and satisfaction
This variation applies when the due diligence process includes reviewing the target party’s employee-related matters, including employee retention, satisfaction, and potential labor risks.
The buyer agrees to conduct due diligence by reviewing employee turnover rates, satisfaction surveys, and employee retention strategies to assess any potential risks associated with the workforce or human capital in the seller’s organization.
Due diligence for intellectual property infringement risks
This variation applies when due diligence is used to assess any risks related to intellectual property infringement, including the target party’s exposure to potential legal challenges over its intellectual property.
The buyer agrees to conduct due diligence by reviewing any existing or potential risks of intellectual property infringement claims against the seller, including assessing the validity of the seller’s intellectual property portfolio and any ongoing or threatened litigation.
Due diligence for environmental liabilities
This variation applies when due diligence includes reviewing the potential environmental liabilities associated with the seller’s business, such as violations or compliance issues with environmental laws.
The buyer agrees to conduct due diligence to assess any potential environmental liabilities associated with the seller’s business, including reviewing past and current environmental audits, reports, and any involvement in environmental remediation efforts.
Due diligence for long-term contracts and commitments
This variation applies when due diligence involves assessing the long-term contracts and commitments made by the target party, including reviewing their impact on the business’s financial and operational performance.
The buyer agrees to conduct due diligence by reviewing the seller’s long-term contracts and commitments, including evaluating any obligations to customers, vendors, or partners that may impact future financial performance or operational flexibility.
Due diligence for technology infrastructure and scalability
This variation applies when due diligence focuses on reviewing the target party’s technology infrastructure, including its scalability, security, and overall performance.
The buyer agrees to conduct due diligence by assessing the seller’s technology infrastructure, including reviewing the scalability, security, and performance of key systems, platforms, and IT assets critical to the business’s operations.
Due diligence for compliance with data protection laws
This variation applies when due diligence is focused on reviewing the target party’s adherence to data protection and privacy regulations.
The buyer agrees to conduct due diligence by verifying the seller’s compliance with data protection and privacy laws, including reviewing data processing agreements, privacy policies, and any history of data breaches or non-compliance.
Due diligence for business model and revenue streams
This variation applies when the buyer reviews the target party’s business model and revenue streams to assess their sustainability and risks.
The buyer agrees to conduct due diligence by reviewing the seller’s business model and revenue streams, including assessing the sustainability and diversification of revenue sources and identifying any risks associated with over-reliance on specific markets or customers.
Due diligence for insurance coverage and claims history
This variation is used when due diligence involves reviewing the target party’s insurance coverage and claims history to identify any potential risks related to liabilities.
The buyer agrees to conduct due diligence by reviewing the seller’s insurance coverage, including policies for liability, property, and workers’ compensation, as well as assessing the seller’s claims history to identify any risks or gaps in coverage.
Due diligence for trade secrets and confidential information
This variation applies when due diligence focuses on reviewing the protection of trade secrets and confidential information within the target party’s business.
The buyer agrees to conduct due diligence by evaluating the seller’s trade secrets and confidential information protection mechanisms, including reviewing the seller’s security protocols, non-disclosure agreements, and historical incidents of unauthorized disclosure.
Due diligence for employee benefit plans
This variation applies when one party must review the other party’s employee benefit plans to evaluate financial liabilities and compliance with applicable regulations.
The buyer agrees to conduct due diligence by reviewing the seller’s employee benefit plans, including retirement, health, and insurance benefits, to assess the financial liabilities and compliance with relevant laws and regulations.
Due diligence for historical financial statements
This variation is used when the party conducting due diligence needs to examine the target’s historical financial data to assess its financial stability.
The buyer agrees to conduct due diligence by reviewing the seller’s historical financial statements for the past three years, including balance sheets, income statements, and cash flow statements, to evaluate the financial stability of the business.
Due diligence for customer contracts and agreements
This variation is used when reviewing customer contracts and agreements to identify risks related to customer retention and satisfaction.
The buyer agrees to conduct due diligence by reviewing the seller’s customer contracts and agreements, including terms and conditions, pricing structures, and any potential risks related to customer retention or satisfaction.
Due diligence for key management personnel
This variation applies when assessing the qualifications, experience, and retention risks of key individuals in the organization.
The buyer agrees to conduct due diligence by assessing the qualifications, experience, and performance of the seller’s key management personnel, including reviewing their compensation packages and any potential risks associated with their retention.
Due diligence for product warranty liabilities
This variation focuses on assessing the risks associated with warranty obligations and claims.
The buyer agrees to conduct due diligence to assess the seller’s product warranty liabilities, including reviewing warranty terms, claims history, and any risks of future warranty-related costs.
Due diligence for non-compete agreements
This variation is used when verifying the enforceability and impact of non-compete agreements on the transaction.
The buyer agrees to conduct due diligence by reviewing the seller’s existing non-compete agreements with employees, contractors, and key partners, to ensure there are no restrictions that could affect the transaction or future business operations.
Due diligence for vendor agreements
This variation applies when assessing the terms and stability of key vendor relationships.
The buyer agrees to conduct due diligence by reviewing the seller’s vendor agreements, including pricing terms, performance obligations, and any risks related to the stability or reliability of the vendor relationships.
Due diligence for distribution channels
This variation is used to evaluate the effectiveness and reliability of distribution channels used by the target party.
The buyer agrees to conduct due diligence by reviewing the seller’s distribution channels, including their performance, contractual terms, and risks associated with exclusivity or dependency on specific distributors.
Due diligence for data privacy practices
This variation applies when assessing compliance with data privacy laws and the adequacy of data protection measures.
The buyer agrees to conduct due diligence by reviewing the seller’s data privacy policies, practices, and compliance with relevant data protection laws, including any risks related to previous breaches or non-compliance.
Due diligence for merger synergies
This variation focuses on assessing the potential synergies and operational efficiencies from the merger.
The buyer agrees to conduct due diligence by evaluating the potential operational, financial, and strategic synergies from the merger, including analyzing cost-saving opportunities and integration plans.
Due diligence for intellectual property licensing agreements
This variation is used to assess the terms and enforceability of intellectual property licenses.
The buyer agrees to conduct due diligence by reviewing the seller’s intellectual property licensing agreements, including scope, exclusivity, and any limitations or risks associated with the licenses.
Due diligence for supply chain dependencies
This variation applies when analyzing the target’s reliance on specific suppliers or raw materials.
The buyer agrees to conduct due diligence by assessing the seller’s supply chain dependencies, including risks related to single-source suppliers or critical raw materials, to identify potential vulnerabilities.
Due diligence for equity structure and shareholder agreements
This variation is used when verifying ownership structure and shareholder rights.
The buyer agrees to conduct due diligence by reviewing the seller’s equity structure, shareholder agreements, and any restrictions on share transfers or rights that may impact the transaction.
Due diligence for compliance certifications
This variation applies when verifying the target’s compliance with industry certifications or standards.
The buyer agrees to conduct due diligence by reviewing the seller’s compliance certifications, including audits, renewals, and adherence to regulatory or industry-specific standards, to confirm their validity and applicability.
Due diligence for pending government investigations
This variation focuses on reviewing any ongoing investigations or inquiries involving the target party.
The buyer agrees to conduct due diligence by evaluating any ongoing or pending government investigations into the seller’s business operations, including assessing the risks and potential financial impact of such investigations.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.