The most common transactions include:
- purchasing a business
- entering into a partnership
- entering into a major contract
Buying a business or entering into a partnership
Buyers have the right to look at the records, assets, and operations of a business before committing to purchasing or entering into a partnership.
The result of a due diligence exercise should be a complete story of the target company (or partner). This story should include information on the financial, commercial, operational, and legal position of the target business or partner.
This should outline all financial aspects of the company (eg debts, profit/loss ledgers, and the accounts of any wholly-owned subsidiary company). Buyers can access a business’ latest accounts, annual returns, and company reports through Companies House (where all limited companies in the UK must register).
This should include a review of the commercial aspects relevant to the target (eg market conditions, competitor analysis, compliance with industry standards, impact of any upcoming legislation changes to the sector, and general information on the target’s goods and services).
This should collate all of the company’s procedures, its location, inventories, suppliers, management structure, staff levels and skills, customer relations, and specific insurance coverage
This identifies any legal risks affecting the rights or obligations of the target (eg ownership of property, equipment or vehicles, employment disputes, ongoing litigation, intellectual property, and client contracts)
All information presented, especially the financial information must be accurate otherwise the individual directors may be exposed to criminal sanctions.
Entering into a major contract
In addition to the investigations required above, major contracts with consumers can also be affected by anti-money laundering legislation or 'customer due diligence'.
Customer due diligence means taking steps to identify your customers and checking that they are who they say they are. Businesses can do this by taking their name, photograph of an official document that confirms their identity, residential address, and date of birth. The best way to do this is to ask for a government-issued document (eg passport), along with utility bills, bank statements, and other official documents.
Businesses must apply customer due diligence when:
- a new ongoing business relationship is established
- a customer’s circumstances change
- there are doubts about a customer’s information that was obtained previously
- money laundering or terrorist financing is suspected
Business must also comply with customer due diligence when your business carries out ‘occasional transactions’. ‘Occasional transactions’ are transactions that are not carried out within an ongoing business relationship where the value is:
€15,000 or more if you’re not a high-value dealer (or the equivalent in other currencies)
€10,000 if you are a high-value trader (or the equivalent in other currencies)
This applies whether it’s a single transaction or linked transactions. Linked transactions are individual transactions of less than €15,000 (or €10,000 for high-value dealers) that have been deliberately broken down into separate, smaller transactions to avoid customer due diligence checks. Your business must have systems in place to detect potentially linked transactions. For more information, read the government's guidance.
If you have doubts about a customer’s identity, you must not continue to deal with them until you are.