What is due diligence?
Due diligence is the enquiry a person makes before buying a business, investing in it, or lending to it. It collects the legal, financial, and tax facts that should decide whether the deal proceeds, and at what price.
No. An audit is the statutory opinion on the accounts. Due diligence is a check, agreed for a particular deal, and it can cover contracts and tax as well as the accounts.
What is being checked?
The checker reads what the company has already filed and what it holds privately: the financial statements, the annual return, the register of charges, pending litigation, major contracts, ownership of the shares, and the tax and GST filings. The point is to find a debt, a dispute, or a missing filing before the price is fixed.
Which checks are usual?
| Check | What it looks at |
|---|---|
| Legal | Incorporation, shares, contracts, litigation, and whether the seller can transfer what is being sold |
| Financial | Assets, liabilities, the accounting policy, and whether the profit in the accounts is the profit the books support |
| Tax | Returns filed, demands raised, and positions that could become a demand after the deal |
What does the report change?
The report is for the person who asked for it. A serious finding can end the talks, reduce the price, or become a warranty or an indemnity in the agreement. It does not bind the company, the Registrar, or the tax department. A filing that is missing is still missing after the report. It has to be filed on its own rule.
What can it not promise?
The check is only as complete as the papers produced. Culture, customers who may leave, and profit after the deal are outside a file review. Calling the process a background check does not make it a credit score, and it does not replace the statutory audit.
Frequently asked questions
Four questions cover an audit, a guarantee, walking away, and a statutory form.
Is due diligence the same as an audit?
No. An audit is the statutory opinion on the accounts. Due diligence is a check, agreed for a particular deal, and it can cover contracts and tax as well as the accounts.
Does a clean report guarantee the business?
No. It reports what the papers show on the date of the check. It does not promise future profit, and it cannot see facts the company did not disclose.
Can the buyer walk away?
Yes, if the contract allows it, or if the parties have not yet signed. A finding can also change the price or add a warranty. The report itself is not a cancellation.
Is there one statutory form?
No. The Companies Act does not prescribe a due-diligence form. The scope is whatever the parties agree to examine.
Sources
There is no Due Diligence Act. The papers that are read are the company’s own filings: financial statements, annual returns, charges, and tax returns.