DUE DILIGENCE OF A U.S. BUSINESS PARTNER

06 August 2026

Due Diligence of a U.S. Business Partner: How to Assess Reliability and Financial Strength

For Italian companies seeking to expand into the United States, selecting the right business partner is often one of the most critical steps in the internationalization process. Distributors, sales agents, importers, and local resellers can facilitate market entry, provide access to established business networks, and significantly reduce the time required to reach customers. However, choosing the wrong partner may expose a company to substantial risks if that partner lacks the financial resources, organizational capacity, or reliability necessary to fulfill its contractual obligations.

Companies frequently focus their initial assessment almost exclusively on the prospective partner's declared commercial capabilities. The size of its customer base, industry expertise, sales network, and geographic coverage are undoubtedly important factors, but they do not, by themselves, provide a reliable measure of a company's financial strength or long-term stability. A persuasive sales presentation, a professional website, or a willingness to sign an agreement quickly do not necessarily indicate that a business is financially sound, free from significant litigation, or genuinely capable of meeting its contractual commitments.

Due diligence should begin with accurately identifying the legal entity that will become the contractual counterparty. In the United States, it is common for affiliated companies within the same corporate group to operate under similar names, shared brands, or trade names that differ from their registered legal names. It is therefore essential to determine which legal entity will execute the agreement, in which state it was incorporated, and where its principal place of business is located. For example, a corporation or limited liability company (LLC) incorporated in Delaware may conduct its primary business operations in another state and operate through subsidiaries or affiliated entities.

The records maintained by the relevant Secretary of State generally allow companies to verify a business's legal existence, date of incorporation, entity status, and, in some jurisdictions, additional information regarding directors, officers, or registered agents. A company listed as being in good standing generally means that it legally exists and has complied with the annual administrative requirements imposed by its state of incorporation. However, this status should not be interpreted as evidence of financial stability or commercial reliability. A company may be fully compliant from a corporate law perspective while experiencing serious financial difficulties.

It is equally important to verify who has the legal authority to bind the company. During commercial negotiations, discussions are often conducted by sales managers, consultants, or representatives of affiliated companies rather than by individuals formally authorized to execute contracts. Before signing any agreement, the Italian company should confirm that the signatory has the authority to enter into binding obligations on behalf of the legal entity identified in the contract. Where the operating partner is a recently established company or has limited financial resources, it may be appropriate to request a parent company guarantee or another form of security from a financially stronger affiliated entity.

The second stage of due diligence concerns the prospective partner's financial condition. Requests for financial statements, management accounts, banking references, or trade references should be proportionate to the significance of the commercial relationship. The greater the Italian company's exposure—whether through extended payment terms, marketing investments, inventory commitments, or territorial exclusivity—the more comprehensive the financial review should be. Particular attention should be paid to revenue stability, debt levels, available liquidity, and the partner's ability to invest the resources necessary to effectively develop the market.

Information provided directly by the prospective partner should be supplemented, where appropriate, with commercial credit reports and independent business intelligence. These sources may provide valuable information regarding payment history, outstanding financial obligations, and significant changes in the company's ownership or organizational structure. Such information should always be interpreted within the broader business context. A rapidly growing company may carry substantial debt without being financially distressed, while an apparently stable business may depend heavily on a small number of customers or on credit facilities that could be withdrawn at short notice.

Due diligence should also include a review of bankruptcy proceedings, litigation, and other potentially significant legal disputes. Given the frequency of commercial litigation in the United States, the mere existence of legal proceedings involving a company is not, by itself, a reliable indicator of risk. Instead, companies should assess the nature, significance, and recurrence of the disputes. Multiple collection actions brought by suppliers, recurring employment or customer disputes, or litigation involving unfair business practices may reveal structural weaknesses that are not evident from financial documentation alone.

Where appropriate, the review should also extend to security interests and liens affecting the prospective partner's assets. Under the U.S. legal system, creditors may obtain security interests in business assets, inventory, accounts receivable, and other collateral. The existence of filings under Article 9 of the Uniform Commercial Code (UCC) does not necessarily indicate financial distress, as such security interests are commonly associated with ordinary commercial financing. Nevertheless, a large number of secured claims or security interests covering substantially all of a company's assets may significantly reduce the recovery prospects of unsecured creditors in the event of insolvency.

Financial due diligence alone is not sufficient. A distributor may be financially stable yet lack the commercial infrastructure necessary to successfully promote Italian products. Companies should therefore evaluate the territories effectively covered by the partner, the size and experience of its sales force, the customers it currently serves, and any competing products already included in its portfolio. References obtained from existing suppliers and industry participants can often provide valuable practical insights.

Particular caution is warranted when a prospective partner requests exclusive distribution rights. Granting exclusivity for the entire U.S. market may appear justified as an incentive for investment, but it can significantly limit market opportunities if the distributor operates only in selected states or sales channels. Exclusive rights should therefore be tied to objectively measurable performance criteria, such as minimum sales volumes, promotional investments, territorial coverage, and periodic reporting obligations. Failure to meet these agreed benchmarks should entitle the supplier to reduce the scope of the exclusive territory, convert the arrangement into a non-exclusive relationship, or terminate the agreement.

Due diligence should also address regulatory compliance. Depending on the industry involved, it may be necessary to verify that the prospective partner holds the required licenses, permits, and insurance coverage. Companies should also assess whether appropriate internal policies are in place to ensure compliance with applicable anti-corruption laws, economic sanctions regulations, consumer protection rules, product safety requirements, and data protection standards. The conduct of a distributor or local sales agent may directly affect the reputation of the Italian brand and, in certain circumstances, may also expose the manufacturer to legal liability.

Finally, the findings of the due diligence process should be reflected in appropriate contractual safeguards. Where the prospective partner has limited financial resources, the parties may consider advance payment requirements, credit limits, bank guarantees, or trade credit insurance. Where the principal concern relates to commercial performance, the agreement should establish measurable sales targets, reporting obligations, inventory management requirements, trademark usage rules, and clearly defined conditions governing the continuation of exclusive rights. The contract should also address the duration of the relationship, termination rights, the handling of outstanding orders, and the return of confidential information and company materials.

Ultimately, selecting a U.S. business partner should never be based solely on personal trust or the opportunities presented during negotiations. The purpose of due diligence is not to eliminate every potential risk, but to understand who the business partner is, what resources it actually possesses, and which contractual protections are appropriate under the circumstances. A thorough review, proportionate to the value and expected duration of the commercial relationship, enables Italian companies to negotiate from a stronger position, reduce financial exposure, and build more stable and sustainable business partnerships in the U.S. market.

Ferretti Firm

The information contained in this article is provided for general informational purposes only and does not constitute, and is not intended to constitute, legal advice or any other form of professional advice. The content does not take into account the specific circumstances of any individual case and should not be relied upon as a basis for making decisions without obtaining appropriate professional advice.