Risk Factors to Consider in Due Diligence

A merger or sale can be a significant milestone for a company. However, it can open the door to serious issues. This includes legal liability in the form of financial losses, reputational damage and legal damage. Due diligence is a process that allows companies to thoroughly analyze any new venture.

The risk factors that are discovered in due diligence are dependent on the type of business and the nature of the customer. For instance the bank or financial institution may require a greater degree of due diligence than a retail store or e-commerce company. A business that has a global presence might have to examine laws specific to the country which affect its operations more than an individual domestic customer.

A major risk factor companies must be aware of is whether the customer appears on the sanctions lists. This is a crucial check that should be carried out prior to any contract is signed, especially in the event that the client could have been found to have engaged in illegal actions like bribery or fraud.

In a due diligence procedure it is crucial to take into account the degree of dependence on specific individuals or organizations. A company’s dependence on its owner-managers or key employees could be www.getvdrtips.net/a-comprehensive-guide-to-selecting-the-perfect-boardroom-software a red signal which could result in unexpected losses if an employee suddenly quits the company. The number of shares held by the top management is also something to be considered. A high percentage of ownership is a positive sign, while a low level is a warning.