When enquiring about a business for sale, it is common for the seller or business broker to ask you to sign an NDA or confidentiality agreement before discussing the business’ sensitive information.
What are non-disclosure agreements (NDA) and confidentiality agreements?
A non-disclosure agreement (NDA) is a legally binding contract that is used in situations where sensitive information is to be shared between two or more parties. Non-disclosure agreements are also known as confidentiality agreements.
By signing the agreement, the party or parties who gain access to the sensitive information are agreeing that the information will be kept secret and only used for an agreed purpose.
Why are NDAs and confidentiality agreements important when buying and selling a business?
When selling a business, a buyer may wish to see the business’ financials or other sensitive business information. In situations like this, confidentiality can be a large concern for the seller.
The signing of a non-disclosure agreement/confidentiality agreement can help the seller to share sensitive information without the fear of the information being passed onto their competitors or used against them in a negative way.
Also, as a seller, you may wish to keep the pending sale of your business private as to not alert your competitors, clients, employees or suppliers before the sale is complete. Therefore, the signing of a non-disclosure agreement can be very helpful in these situations.
Not all NDAs and confidentiality agreements are the same. It is very important for sellers to seek professional or legal advice when preparing an NDA so that it is specific to the business and all the key elements are covered.