Due diligence cooperation: Overview, definition, and example
What is due diligence cooperation?
Due diligence cooperation refers to a contractual obligation requiring one party to assist another in conducting due diligence by providing necessary information, documents, or access to key personnel. This clause is commonly found in mergers and acquisitions, financing agreements, and regulatory compliance matters.
For example, in an investment agreement, a company seeking funding must cooperate with the investor’s due diligence process by providing financial records, contracts, and compliance reports for review.
Why is due diligence cooperation important?
Due diligence cooperation is important because it ensures that all necessary information is made available for a proper evaluation of risks, liabilities, and compliance before finalizing a transaction. This provision helps prevent fraud, misrepresentation, or legal disputes by requiring transparency between the parties.
For businesses, including this clause in agreements helps facilitate smooth transactions, regulatory compliance, and financial audits. It is particularly useful in corporate acquisitions, loan approvals, and investment deals, where a thorough review of the target entity is required.
Understanding due diligence cooperation through an example
A venture capital firm is considering investing in a technology startup. The investment agreement includes a due diligence cooperation clause, requiring the startup to grant access to its financial statements, intellectual property records, and customer contracts. This ensures that the investor can properly assess risks before committing capital.
In another case, a bank processes a loan application for a real estate developer. The loan agreement states that the developer must cooperate with the bank’s due diligence requests, including submitting property appraisals, zoning approvals, and tax filings. If the developer refuses to provide necessary documents, the bank may deny the loan.
Example of a due diligence cooperation clause
Here’s how a due diligence cooperation clause might appear in a contract:
“Each Party agrees to provide reasonable cooperation in connection with any due diligence investigation requested by the other Party, including access to financial records, legal documents, and key personnel. Such cooperation shall be provided in good faith and in a timely manner to facilitate the evaluation process.”
Conclusion
A due diligence cooperation clause ensures transparency and accountability by requiring parties to provide necessary information for an informed decision-making process. This provision is essential in financial transactions, mergers, and compliance matters, helping to prevent legal and financial risks. Including a well-drafted due diligence cooperation clause in agreements facilitates trust and efficiency in business transactions.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.