Published on 09/07/2014 by Catherine

Confidentiality Agreement - What is it and why do i have to sign one....

Confidentiality Agreements

If you have spent any time in the investment or business world then chances are you have come across a Confidentiality Agreement, sometimes also referred to as an NDA or non-disclosure agreement.

What is a Confidentiality Agreement?

A Confidentiality Agreement is a written contract between two or more parties who are entering into a business relationship where confidential information will be shared. In the case of buying or selling a business, the Confidentiality Agreement is used when the seller needs to provide sensitive information to a potential buyer. This information can include financial statements, trading practices, marketing strategies, asset lists, lease agreements or supplier details. By signing the Confidentially Agreement the potential buyer is agreeing not to disclose this information to any third party or to use it in any way except as described in the agreement.

Do I Need to Sign a Confidentiality Agreement?

Often, if you are looking to buy a business, you will be asked to enter into a Confidentiality Agreement before being provided with information that the seller considers confidential. You are of course under no obligation to sign such a document, but you must remember that without such an agreement the vendor is unlikely to provide information to you that is vital for conducting due diligence. By signing the Confidentiality Agreement you are saying to the vendor that you will only use the information provided to properly evaluate the business.

Who Does it Protect?

The Confidentiality Agreement protects both the vendor and the potential buyer by specifying how the provided information can be used. As a legal document the Confidentiality Agreement can be used as evidence in court by either party in the event of a dispute. At the same time, having such a contract can reduce the likelihood of such a dispute arising in the first place.

The benefits of a Confidentiality Agreement:

  • It provides protection for the business owner from having sensitive information shared with a third party or used for competitive advantage.
  • It allows for the client to get a full picture of the business by having access to information that may not otherwise be provided.
  • It protects both parties in the case of a dispute by outlining the obligations of each signatory and detailing how information may be used.

What to Look For

As with any legal document it is of course imperative that everything is clearly stated. There is no point having a Confidentiality Agreement if no one actually understands what it is they are signing.

For the vendor, this means making sure that the Confidentiality Agreement contains all the points you want covered and that it is clearly written and easily understood. For the potential buyer, make sure that you fully understand what it is you are signing and that you fully understand what your obligations are. The best way to do this is to talk to a good business broker who will be able to explain everything to you.

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Catherine

Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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