Why do you need an NDA when selling your business?

| 1 min read

Click here to download a non-disclosure agreement.

When you put your business on the market for sale, you will get potential customers who will want to know information regarding your business. This means that you will have to divulge information relating to your business which you would want to remain confidential from your competitors and the public.

If you do not use a legally drafted non-disclosure agreement (NDA), there really is no way that this information will remain confidential. By getting the potential buyer to sign an NDA, it will prevent them from disclosing sensitive relating to your business.

What is an NDA?

NDA is a confidentially agreement that becomes part of the business sale. It is to be signed by you and the person interested in purchasing your business before they receive the sales memorandum.

An NDA will protect the goodwill of your business as well as the information which you will disclose. It is an essential element of selling your business to safeguard your confidential data.

The main elements of NDA

The essential elements of an NDA include the details of the parties which are party to it, the specific information that is to remain confidential, and the amount of time till that information is to remain confidential.

The purpose for which the information is being divulged and how the information can be used also needs to be stated within the NDA.

Further, you need to include the details of anyone (if any) the other party can share the information too. For instance, the purchaser will want their accountant to take a look at the profit and loss account. Click here to find out the other detailed elements of an NDA.

What are the benefits of using an NDA

The very fact that you are selling your business is highly sensitive information and using an NDA offers the following benefits:

  • It is entirely possible that the buyer operates in the same industry. If the buyer backs out before the deal is struck, there is nothing you can do to prevent them from using the information you so kindly provided to gain a competitive edge.
  • You might want to exit a deal if the negotiations fail at a later stage. If you had signed an NDA, you would not have to stress about the other party using the disclosed information as they will be open to legal claim if they do.
  • If the potential buyer only wants to acquire confidential information for their commercial benefit or in any way other than the purpose set out in the NDA, you can bring legal action against them.
  • Though an NDA cannot prevent any person from disclosing your confidential information, it certainly is an effective deterrent.

Other documents you need when selling

The starting point for documents are those relating to the sale and purchase – of company shares, or of business assets.

Additionally, you may need assignment and novation agreements to transfer contracts you are a party to.

We can help you find exactly what you need for your circumstances if you contact us and ask.

Please note that the information provided on this page:

  • Does not provide a complete or authoritative statement of the law;
  • Does not constitute legal advice by Net Lawman;
  • Does not create a contractual relationship;
  • Does not form part of any other advice, whether paid or free.
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