due diligence

noun

Definition of due diligence

1 law : the care that a reasonable person exercises to avoid harm to other persons or their property failed to exercise due diligence in trying to prevent the accident

2 business : research and analysis of a company or organization done in preparation for a business transaction (such as a corporate merger or purchase of securities)

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Doing Your Due Diligence

Due diligence has been used since at least the mid-fifteenth century in the literal sense “requisite effort.” Centuries later, the phrase developed a legal meaning, namely, “the care that a reasonable person takes to avoid harm to other persons or their property”; in this sense, it is synonymous with another legal term, ordinary care. More recently, due diligence has extended its reach into business contexts, signifying the research a company performs before engaging in a financial transaction. This meaning may also apply to individuals: people are often advised to perform their due diligence before buying a house, signing a loan, or making any important purchase.

Examples of due diligence in a Sentence

Recent Examples on the Web

This is part of the due diligence process in the closing process. — Dottie Herman, Time, "Everything You Need to Know About Buying Your First Home," 3 July 2018 The town council on Tuesday voted unanimously to move forward with due diligence checks before buying the property for $3.4 million. — Jesse Leavenworth, Courant Community, "East Hartford Looking At Ways To Revitalize Silver Lane," 8 June 2018 Here’s how #Angels works: When one woman is approached about or seeks a potential investment, that person does the due diligence, fields the initial phone calls and meetings, and takes copious notes. — Jo Piazza, Marie Claire, "Hatched at Twitter," 12 Feb. 2019 According to Bloomberg, the chips were discovered by Amazon's Web Services division in 2015 during the due diligence prior to the acquisition of a video streaming company called Elemental Technologies, whose servers were assembled by Super Micro. — Eric Limer, Popular Mechanics, "Tiny Chinese Microchips Reportedly Found Hidden in Amazon, Apple Servers," 4 Oct. 2018 The due diligence by our front office was unprecedented. — Janie Mccauley, The Seattle Times, "Osuna sent to Astros by Blue Jays for Giles in closer swap," 30 July 2018 That will start with a relatively quick inspection to see if the offer is serious enough and competitive enough to grant Comcast access to its books, known as due diligence. — Edmund Lee, New York Times, "With Two Suitors for Fox, the Murdochs Consider Next Steps," 18 June 2018 The Saints, however, are conducting due diligence at the NFL Scouting Combine and held formal interviews with South Dakota State's Dallas Goedert and Oklahoma's Mark Andrews, both of whom project as first- or second-round picks. — Herbie Teope, NOLA.com, "Saints hold formal interviews with top tight end draft prospects at Combine," 3 Mar. 2018 Our culture and our processes around our due diligence and compliance was strong at the time, and is even stronger today. — Liz Hoffman, WSJ, "Goldman CEO Defends Firm on 1MDB Accusations," 21 Dec. 2018

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'due diligence.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

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Last Updated

18 Apr 2019

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The first known use of due diligence was in 1598

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More Definitions for due diligence

due diligence

noun

Financial Definition of due diligence

What It Is

Due diligence is the careful, thorough evaluation of a potential investment, whether on a corporate or individual level.

How It Works

For individual investors, due diligence often means studying annual reports, SEC filings, and any other relevant information about a company and its securities. The objective is to verify the material facts related to the purchase of the investment, as well as to understand whether the investment fits an individuals return requirements, risk tolerance, income needs, and asset allocation goals.

An individual's due diligence might include reading the company’s last two or three annual reports, several recent 10-Qs, and any independent research they could find. In doing so, they would develop a sense of where Company XYZ is headed, what market factors might affect the stock’s price, and how volatile the stock is. This in turn might give them guidance about whether the investment is right for you, and if so, the size and timing of their investment.

In a merger scenario, due diligence often involves a team of people specially tasked with reviewing and verifying every aspect of an investment in another company. In many cases, this team might include lawyers, accountants, and investment bankers.

Why It Matters

Due diligence helps people and companies understand the nature of an investment, the risks of an investment, and how (or whether) an investment fits into a particular portfolio. Due diligence isn’t just good sense, it’s a duty investors owe to themselves -- doing this sort of "homework" on a potential investment is often essential to making prudent investment decisions.

Source: Investing Answers

due diligence

noun

Legal Definition of due diligence

1 : such diligence as a reasonable person under the same circumstances would use : use of reasonable but not necessarily exhaustive efforts

— called also reasonable diligence

Note: Due diligence is used most often in connection with the performance of a professional or fiduciary duty, or with regard to proceeding with a court action. Due care is used more often in connection with general tort actions.

2a : the care that a prudent person might be expected to exercise in the examination and evaluation of risks affecting a business transaction

b : the process of investigation carried on usually by a disinterested third party (as an accounting or law firm) on behalf of a party contemplating a business transaction (as a corporate acquisition or merger, loan of finances, or especially purchase of securities) for the purpose of providing information with which to evaluate the advantages and risks involved the greatest exposure…for failure to conduct adequate due diligence arises in the context of public offerings of securities— G. M. Lawrence

c : the defense (as to a lawsuit) that due diligence was conducted