Due diligence – a basic tool in your business kit


We normally only hear about due diligence in the context of large business deals or mergers and acquisitions. The principles of due diligence can however, be applied at any level of business interaction and the benefits are significant. On the most basic level, due diligence is simply a reference to the fact that you check out who exactly it is that you are dealing with.

Contemplate for a moment how many things you do without checking who you are dealing with, that a person has the security they claim to have, or that they even live at a particular address! Maybe someone wants to borrow money from you, or you want to invest in a business, or you want to get a business partner in.

It is normal business practice for large companies to do due diligence because the transactions they engage in justify it. You wouldn't buy a mine without checking what resources it has, would you? While the average person is not engaged in multi-million rand transactions, the relative value of a transaction for each individual might still make it worthwhile to exercise a reasonable level of caution.

Due diligence can be very broad and should be adjusted according to the nature of the transaction it relates to.

Here are some examples:
1) When buying a business you might check the following, amongst other things:
• The people acting for the seller and buyer are authorised to do so;
• Who are the parties, directors or owners and where are their registered offices;
• Who are the auditors and what access do you have to audited statements;
• Invoices and receipts tally with recorded figures and with VAT submissions;
• SARS responsibilities like PAYE, Income Tax, UIF and other similar legal obligations     are complied with;
• Any zoning or other compliance requirements essential to the running of the     business;
• What liabilities does the company have, including litigation and other possible     adverse claims; and
• The condition of machinery or licensing of software is acceptable and up to date.

2) When dealing with individuals, consider doing basic checks on the following:
• Their full name and identity number;
• Proof of address and in the case of a home owner, that the Deeds Office has a    record of their ownership of a house;
• If married, what form of marriage and if out of community of property, whether the    ante-nuptial contract is registered or not; and
• Director and company checks of individuals to determine what other interests they    have that might conflict with yours.

Even these most basic checks could save you a great deal later, when a transaction might go wrong or when a debtor owes you money and suddenly you discover that all is not what it seemed when you first engaged in the transaction. Let us help you before this uncomfortable shock.

From the team.
MA Cooper Attorneys
With Energy and with Experience, giving you Expression