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Contents
[hide]
1Etymology
2Examples
o 2.1Business transactions and corporate finance
o 2.2Foreign Corrupt Practices Act
o 2.3Human rights
o 2.4Civil litigation
o 2.5Criminal law
3See also
4References
Etymology[edit]
The term due diligence means "required carefulness" or "reasonable care" in general usage
and became a specialized legal term and later a common business term due to the United
States Securities Act of 1933, where the process is called "reasonable investigation" (section
11b3). This Act included a defense at Section 11, referred to later in legal usage as the due
diligence defense, which could be used by broker-dealers when accused of inadequate
disclosure to investors of material information with respect to the purchase of securities. In legal
and business use, the term was soon used for the process itself instead of how it was to be
performed, so that the original expressions such as "exercise due diligence in investigating" and
"investigation carried out with due diligence" were soon shortened to "due diligence investigation"
and finally "due diligence".
As long as broker-dealers exercised due diligence (required carefulness) in their investigation
into the company whose equity they were selling and as long as they 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 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.
Examples[edit]
Business transactions and corporate finance[edit]
Due diligence takes different forms depending on its purpose:
See also[edit]
Data room, Virtual data room
Model audit
Bias ratio (finance)
Operational due diligence (ODD)
Management due diligence
Non-disclosure agreement
Integrity management
Hydropower Sustainability Assessment Protocol
References[edit]
1. Jump up^ Hoskisson, Robert E.; Hitt, Michael A.; Ireland, R.
Duane (2004). Competing for Advantage. Mason, OH: South-
Western/Thomson Learning. p. 251. ISBN 0-324-27158-1.
2. Jump up^ Chapman, C. E. (2006). Conducting Due
Diligence. Practicing Law Institute, New York, NY.
3. ^ Jump up to:a b c d e Gillman, Luis (2010). Due Diligence, a
Strategic and Financial Approach(2nd ed.). Durban:
LexisNexis. ISBN 978-0-409-04699-1.
4. ^ Jump up to:a b c d e f g Harvey, M. G.; Lusch, R. F. (1995).
"Expanding the Nature and Scope of Due Diligence". Journal of
Business Venturing. 10 (1): 521. doi:10.1016/0883-
9026(94)00020-U.
5. ^ Jump up to:a b c d e f g Kroener, P. H.; Kroener, M. H. (1991).
"Towards more successful Mergers and
Acquisitions". International Journal of Technology
Management. 6(1/2): 3340. doi:10.1504/IJTM.1991.025872.
6. Jump up^ Scott Feeley, Michael; Potash, Aron. "The Oft-
Overlooked Importance of Air Emission Credits in M&A".
Transaction Advisors. ISSN 2329-9134.
7. Jump up^ Gillman (2002). "The link between valuations and due
diligence". Academy of Accounting and Financial Studies
Journal. 6 (2). ISSN 1096-3685.
8. Jump up^ Truax, Margret. "M&A Transactions: Affordable Care
Act Due Diligence Considerations". Transaction
Advisors. ISSN 2329-9134.
9. Jump up^ Gary M. Lawrence, Due Diligence in Business
Transactions, (Law Journal Press1994, updated as
needed). ISBN 978-1-58852-066-1.
10. Jump up^ Tanenbaum, William. "Avoiding IP Business Risks in
Corporate Transactions". Transaction Advisors. ISSN 2329-9134.
11. Jump up^ Cunard, Jeffrey; Pastore, James; Ford,
Christopher. "Cybersecurity: Evaluating Transactional Risk".
Transaction Advisors. ISSN 2329-9134.
12. Jump up^ "Archived copy". Archived from the original on August
30, 2010. Retrieved 2010-01-07. WorldCompliance.com
13. Jump up^ Brooks, Robin; Stacey, Oliver; Jarman,
Daniel. "Tackling Corruption and Regulatory Risk in M&A
Transactions". Transaction Advisors. ISSN 2329-9134.
14. Jump up^ [1] Archived September 4, 2011, at the Wayback
Machine.
15. Jump up^ "Report of the Special Representative of the Secretary
General on the issue of human rights and transnational
corporations and other business enterprises, John Ruggie" (PDF).
Human Rights Council. Retrieved March 1, 2013.
16. Jump up^ Hawaii Revised Statues 353-66.5 and 604-7.2
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