The Confidentiality Agreement

It is normal for sellers to be anxious about disclosing confidential information about their company and the fact that it is for sale. Most business owners would ideally like to tell the fewest people possible, but at the same time sell the company for the highest price and in the shortest time. You can probably see that this leads to a possible problem.

In order to accomplish a quick and quality sale of their business, business owners have to present their offering to quite a few prospects. It is, therefore, important for sellers to be aware of what they can and cannot reveal to their potential buyers. A wise seller will seek the protection of a confidentiality agreement and expect it to touch on the following areas:

  • Determining precisely what type of information can and cannot be disclosed
  • Will the negotiations be open or secret?
  • Time-related validity of the agreement – permanent vs. temporary binding
  • Patent and competitive edge protection – how will both parties go about revealing inventions/secrets during the process?
  • Possible breach of agreement and dealing with repercussion

As the last point suggests, having a confidentiality agreement in place does not guarantee that it will always be honoured. Regardless, it makes both parties aware of what consequences such a breach would cause.

When it comes to confidentiality agreement, a particularly useful is the presence of a professional intermediary. Business brokers are well experienced in this area and know how to go around issues. Since they understand how important it is to maintain confidentiality during the entire sale of a business, professional intermediaries will require all legitimate prospects to execute a confidentiality agreement.

As such, a confidentiality agreement is a legally binding contract enforceable by law. In its essence, it allows the seller to share confidential information with a prospective buyer for evaluative purposes only. Prospects are thus forbidden to share the information with third parties or for their own benefit. Should the contract be broken, the damaged party can claim a breach of contract and seek damages from the perpetrator.