As a buyer looking to purchase a new business there will be a process you need to follow during your search and one of those will be to sign a non-disclosure agreement.
A business broker will usually request that you sign a non-disclosure agreement, also know as a confidentiality agreement, once a business you are interested in has been identified and before any confidential information relating to that business, such as financials, employee records, supplier agreements and lease contracts are provided to you.
A non-disclosure agreement basically prevents you as the buyer from revealing any information about the business you are interested in to any third parties. A non-disclosure agreement usually allows you to discuss information relating to a business with only your support team which might include your accountant, solicitor, the business broker involved in the transaction or a business partner. It protects the seller and their business from having confidential information relating to that business shared with anyone other than the prospective buyer.
The benefits of using a non-disclosure agreement
It is a good idea to sign a non-disclosure agreement before you look into purchasing a business and here are a few reasons why:
· The definition of ‘confidential information’ may be different to a seller and buyer and problems can arise because of this. To prevent any uncertainty, a non-disclosure agreement will clearly define what is classed as ‘confidential information’ so that all parties involved in the transaction know exactly what needs to be kept confidential. That may include trade secrets, a pending patent, profit and loss statements or any product samples made available during the course of a transaction. A non-disclosure agreement can include an extensive list of what information cannot be shared and be as specific as the seller wants it to be.
· If there is any breach of the conditions outlined in the non-disclosure agreement, that agreement will usually also include the consequences that will result from any breach. It will be very clear to all parties involved and provides the seller with a legal document to be able to take legal action should any breach occur.
· In many cases, when a buyer refuses to sign a non-disclosure agreement, preliminary discussions or due diligence cannot happen. So if you are genuinely interested in purchasing a business, you need to really consider signing a non-disclosure agreement or the deal will fall over even before it’s been put together.
· A non-disclosure agreement can also include a clause to protect any information about the buyer which that buyer does not want passed on to any third party. This way, everyone involved feels comfortable and open communication relating to the business can occur.
As a buyer, when you enquire with a business broker about a business they have listed for sale, one of the first things the business broker will ask you to do is to sign a non-disclosure agreement. You should view this as a positive move forward towards finding out all the crucial information which you need to know in order to make a well-informed decision about whether to purchase a business or not.