Due diligence is an investigation of a company, usually performed before entering into an agreement or starting a new business relationship. Due diligence includes reviewing the company's reputation, evaluating projected earnings and cash flows, evaluating the quality of assets, identifying business risks, highlighting unexpected issues that could affect the execution of the agreement, identifying hidden ones costs, obligations and contingencies, reviewing and estimating potential tax charges and other reviews on a case-by-case basis. Due diligence helps to assess whether you can trust your business partner by checking the reliability of new or current business partners with the result that offers a higher level of certainty.

Purpose of due diligence
The overarching goal of the due diligence process is to screen the business partner and draw attention to any potential issues or risks. There are different types of due diligence, and the checks depend on each transaction.

Property check
A property check should be carried out before purchasing a property. It involves an intensive study of the public register, namely whether the property is correctly registered, whether the owner actually has the right to sell the property or whether the property is connected to other properties. In addition, this includes the identification of encumbrances and ongoing proceedings related to the property. If the property is rented or other third-party rights, encumbrances and other registered restrictions, insolvency proceedings or tax debts are registered, the asset test must be carried out. Due diligence also includes reviewing the proposed purchase agreement and identifying risks that could affect the conclusion of the agreement, e.g. B. if the property is rented out, the rental agreement must be taken into account.

Reliability check
In case of entering into a business agreement between two companies, the due diligence process with a view to a possible cooperation would include the following topics: Company records in the business register, confirming the company name, legal address, officials and shareholders, the value added tax register (VAT registration) , verification of status as a VAT payer. The financial stability of the company can be checked with the insolvency register to determine if the company has had or has ever had financial problems such as E.g. bankruptcy, temporary cessation of business activities, tax debts.

Mergers and acquisitions
In the event of a corporate acquisition, before entering into a share purchase agreement, it would be important to assess the financial condition of the target company by evaluating factors such as: earnings and cash flow quality, analysis of the quality of assets and liabilities. It is important to assess the quantity and quality of staff, identify property and investigate whether there are no pending issues or proceedings related to company property; Inspection of public registers when no commercial pledges, encumbrances and legal proceedings are ongoing and could affect the company's assets in the future.

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