What is the meaning of Due Diligence?

Due Diligence is an examination of the books and records of an issuer and interviews with officers, partners, etc, to confirm information about the issuer's business as well as legal and accounting affairs. It typically includes a review of such matters as significant customers and suppliers; the background of key employees (to learn of prior employment problems, criminal convictions, disciplinary actions by market regulators, fraudulent resumés); material contracts; facilities; real property owned; subsidiaries; judgements and lawsuits; insurance; patents and other intellectual property rights; licenses and permits; and tax status. The phrase derives from the fact that under USA law certain persons (including the directors, underwriters and auditors) are personally liable for a misstatement of material fact in a registration statement unless they can demonstrate that after reasonable investigation they had reasonable ground to believe, and in fact did believe, that the statement was true. Conducting the due diligence examination enables these persons to raise a' due diligence defence' if sued.