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Roger L. Neu

 

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Due Diligence

Question: When should I allow the Buyer to perform due diligence?

The timing of due diligence will vary in almost every transaction. Determining the scope and timing of the due diligence is important. Considerations include inconvenience to the Seller, cost to both Buyer and Seller and issues of confidentiality. As a practical matter, due diligence will often start after the letter of intent is signed and will run concurrently with the production of the acquisition documents. In order to protect Seller confidential information, Seller should be careful to not provide sensitive Seller information to Buyer until Seller is confident the transaction will close.

Question: Should the Buyer be allowed to speak with Seller’s customers, suppliers and/or employees before closing?

Though there are very limited exceptions, California will only enforce a covenant not to compete in the case where it is tied to the transfer of an equity interest (transfer of shares or other ownership interest in an entity). Post-employment covenants not to compete and covenants not to compete entered into with nominal shareholders or parties receiving nominal consideration will generally not enforceable in California.


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