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Buying or selling – keep your business information confidential

04 Jul 2017

When it comes time to put a business on the market, it is likely that there will be a number of prospective purchasers interested in finding out more about the business and potentially conducting due diligence investigations.

At this point the business owner will need to provide each prospective purchaser with valuable information about the business including financial records and confidential business documents. To avoid opening the business affairs up to review by all of its competitors the business owner should enter into a Non-Disclosure Agreement, also known as a Confidentiality Agreement, with all of the prospective purchasers.

What is a Non-Disclosure (Confidentiality) Agreement?
A Non-Disclosure Agreement (NDA) is an agreement whereby the prospective purchaser agrees not to use information about a business received in the course of negotiations for any purpose other than negotiation of the prospective sale.  Often this will include a clause that the prospective purchaser will indemnify the vendor for any losses resulting from a breach of the agreement, or reference to other remedies if a party breaches the agreement.
NDAs will generally prohibit prospective purchasers from using the information in a detrimental way, making copies, or giving others access (other than to the purchaser’s professional advisors).

Sign a Non-Disclosure Agreement early on
As the information provided during the negotiations and due diligence stage of a business sale tends to be highly sensitive information, it is typical for a NDA to be signed before any information is handed out. A NDA helps to ensure that important and valuable information about the business is kept confidential and that such information is only used for the purposes of investigations into the purchase of the business.

If you are buying a business, you should be prepared to sign a NDA before information about the business will be released to you.  

If you are selling a business, you should ensure that you have a carefully drafted NDA that you can provide to prospective purchasers before releasing confidential information about your business.

Why is a Non-Disclosure Agreement worthwhile?
Signing a NDA provides certainty about the behaviour expected of both parties during the period where there has been no legally binding commitment to proceed with the sale.  There are a number of reasons that having an NDA in place can be extremely worthwhile, including:

  • It ensures that commercially sensitive and/or confidential information is not released in a way that might harm the business
  • It can safeguard against customers or clients worrying about the continuation of the business before the details of a new owner and/or the ownership transition have been agreed.
  • It protects the intellectual property of your business.
  • It ensures that the vendor has recourse against the prospective purchaser for any unauthorised disclosure of information, as a NDA would generally provide an indemnity from the prospective purchaser for any losses that occur from a breach.

If you are buying or selling a business, it is crucial that you take appropriate advice to ensure you have protection in place.

 At PKF Carr & Stanton, we assist many clients to purchase and sell businesses and work closely with a range of other professionals to protect our clients interests. If you are considering buying or selling a business, please call our office to arrange a complimentary meeting to discuss the best way to achieve a great outcome.

Michael Jackson

Article by Michael Jackson, PKF Carr & Stanton Director

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