"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition.[1]
Contents [hide]
1 Origin of the term "due diligence"
2 Due diligence in specific contexts
2.1 Business transactions and corporate finance
2.2 The Foreign Corrupt Practices Act (FCPA)
2.3 Human rights
2.4 Philanthropy
2.5 Hedge funds and FOREX
2.6 Civil litigation
2.7 Supplier quality engineering
2.8 Criminal law
2.9 Commercial property
2.10 Information security
3 See also
4 References
[edit]Origin of the term "due diligence"
The term "due diligence" first came into common use as a result of the United States' Securities Act of 1933.
This Act included a defence at Sec. 11, referred to as the "Due Diligence" defence, which could be used by broker-dealers when accused of inadequate disclosure to investors of material information with respect to the purchase of securities.
As long as broker-dealers exercised "due diligence" in their investigation into the company whose equity they were selling, and disclosed to the investor what they found, they would not be held liable for non-disclosure of information that was not discovered in the process of that investigation.
The entire broker-dealer community quickly institutionalized, as a standard practice, the conducting of due diligence investigations of any stock offerings in which they involved themselves.
Originally the term was limited to public offerings of equity investments, but over time it has come to be associated with investigations of private mergers and acquisitions as well. The term has slowly been adapted for use in other situations.
