When a new agreement is entered into with another entity, it is a given that both business concerns will exercise their right of due diligence. Meaning that the Entity will obtain reasonable assurance that the party is dealing with carries out its practices in line with Ethical, Regulatory, and Legislative rules. In normal business practice, this means that carrying out a comprehensive assessment of the prospective third party so that its Assets and Liabilities can be evaluated with certainty.
This is done not only from a commercial point of view but also to make sure that the third party is not involved in any illicit activities. When entering into an agreement or contract with another party, it is expected that the business will exercise due diligence. This means that the business will make sure that the party it intends to deal with complies with legal, social and ethical obligations. In practice, this means conducting a comprehensive appraisal of the prospective third party in order to establish its assets and liabilities. This process will not only evaluate its commercial potential, but also any potential risks which may be involved with the partnership. For example, a distributor in a high-risk country may enable a business to expand into new territories but may also expose it to corruption risk