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What Info Should Be Included In A Non Disclosure Agreement?

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Comments & Replies: 8     Views: 5138     Posted By: Timothy Cunha JD  Timothy Cunha JD: Business Broker, SF Bay Area

Just had a discussion with a owner/seller about non-disclosure agreements and confidentiality agreements when selling a business. Here was her question: "I am selling my business and I have heard I should have potential buyers sign a NDA. What items of information should I have on my NDA?"

Topics: Buying A Business, Legal Issues, Non Disclosure Agreements, Selling A Business     Tags: non disclosures, selling a business

You're right about the necessity of having any interested buyers sign a NDA (Non Disclosure Agreement). That is their promise not to discuss with anyone any of the information they learn about your business, including the fact that it is for sale. Most NDA's are one page and should include the statement that the buyer prospect understands he or she may be financially liable to you for violating the agreement.

I do recommend getting a buyer profile from the buyer. It is not something you would include. The profile lists the interested person's name, contact information, businesses and geographical area of interest, a statement about the buyer's amount ofi cash and other assets that can be sold to provide more buyer funds, or can be used as security for a loan. Finally, the prospective buyer's profile should include a a paragraph or so summarizing his/her business experience.

When setting up a meeting with a prospect, let him or her know what you expect to be provided and what you will provide to the prospect in the way of information about the business. There is no excuse, then, for a buyer to neglect to bring the information you want as he or she was notified ahead of time you will not talk about the business without knowing if the individual is qualified to buy it, if interested in doing so.

Contributor: Business Appraisals, Valuations Advisor

The easiest way for me to answer this question is to provide a copy of an NDA I used for years. the seller should not disclose the name of his business or give out any information on his business until he gets the agreement signed as its possible he may be talking with a competitor. See my NDA info/text below:

This document represents an agreement of confidentiality between Seller, and _______________________________________.

The undersigned agrees that any information provided by the Seller, will be used solely for purposes pursuant to acquisition of the company (name of business to be disclosed after completion of this agreement).

The undersigned further agrees to hold all confidential or proprietary information or trade secrets, including knowledge of sale of this company, in trust and confidence and agrees that it shall be used only for the contemplated purpose, shall not be used for any other purpose.

The disclosed information shall not be disclosed to any employee, consultant or third party unless said party agrees to execute and be bound by the terms of this agreement.

It is understood that the undersigned shall have no obligation to hold confidential with respect to any information known by the undersigned or generally known within the industry prior to date of this agreement, or shall become common knowledge within the industry thereafter as said information shall not be deemed protected under this agreement.

Upon demand by the Seller, all information, including written notes, shall be returned.

Keeping the sale confidential is essential for preserving the value of the business for both the seller and the eventual buyer. Before providing a prospect with even the name and location of the business, you should have them sign a comprehensive and strict confidentiality or non-disclosure agreement ("NDA").

The NDA should clearly define the information and data that is confidential, set limitations on just who on the prospect's side can see it (e.g., lawyer, accountant), make the prospect liable for any breach by the prospect or any of his professional advisors, require the prospect to return all copies of information and data if the deal doesn't go through, prohibit the disclosure of any confidential information unless it otherwise becomes publicly available, and prohibit the prospect from using the confidential information in any way (e.g., soliciting customers, hiring away employees, using a proprietary process, etc.). You also want to get some basic financial information from the prospect, so some sort of buyer profile is appropriate.

If you are using a business broker (which I strongly recommend), the broker can obtain the NDA and profile before the buyer even learns the identity of the business. Of course, this is impossible if you are selling your own business.

For an example of a comprehensive, strict, effective NDA, that includes a buyer profile see a copy of my NDA text below:

1. TIMOTHY CUNHA, BRE # 01919755 [TRANSWORLD® BUSINESS ADVISORS of PALO ALTO] (hereinafter referred to as "Broker") is the business transaction intermediary acting on behalf of the Seller and will be compensated by Seller in accordance with a contract signed by the Seller and Broker or by the Seller and another broker (if applicable) cooperating with Broker; Prospect agrees not to circumvent said contract. Any rights of enforcement, compensation, and damages granted herein to the Broker are also granted to a cooperating/listing broker, if any. Seller and Broker (and the cooperating/listing broker, if any) are the beneficiaries of this unilateral contract.

2. Business(es) Covered - Prospect understands that the terms "Seller," "Company," "Business," and "Listing" refer to each and every respective seller, company, business, and/or listing introduced by, revealed by, and/or disclosed by Broker to the Prospect, and this Agreement covers each and every such seller, company, business, and listing, and their respective Confidential Information. The respective "Effective Date" of this Agreement for each such seller, company, business, and listing, shall be the date on which each respective seller, company, business, and listing was introduced to, revealed by, and/or disclosed by Broker to the Prospect.

3. Confidential Information - Prospect understands that the seller of the business ("Seller") and also the business set forth in the Listing (the "Business") shall, directly or indirectly through Broker as its conduit, disclose to Prospect certain confidential and proprietary information related to the Business ("Confidential Information"), which shall include information relating to non-public, confidential, and/or proprietary operations, properties, personnel, financial information, materials, products, technology, computer programs, manuals, business plans, software, marketing plans, and other information disclosed or submitted, orally, in writing, or by any other media solely relating to Prospect's interest in purchasing the Business. Prospect agrees not to disclose, publish, or otherwise reveal any of the Confidential Information to any other parties, agents, representatives, or employees whatsoever nor to use Confidential Information to the detriment of Seller, without the prior written consent of Seller, except that Prospect may disclose the Confidential Information to Prospect's legal counsel, accountant, or lender, subject to the same provisions of confidentiality contained herein.

4. Conduct - Prospect understands and agrees that all communications concerning the Business shall be conducted solely through the Broker, and Prospect agrees not to approach or contact Seller or its principals or visit the physical Business location without an appointment arranged through Broker. Prospect also agrees not to contact or approach Seller's employees, officials, agents, customers, suppliers, and/or competitors without the prior written consent of Seller. Prospect shall be liable to Broker for any and all damages Broker may suffer, including but not limited to Broker's full commission as set forth in a separate agreement with Seller if (a) Prospect buys, leases, receives in trade, or otherwise obtains any part of the Business during the two (2) year period commencing from the Effective Date; (b) Seller and Prospect enter into a contract for sale; (c) Prospect, through no fault of Seller, fails or refuses to complete a sale, lease, trade or other disposition of the Business after entering into an agreement to do so; or (d) Prospect does any act equivalent of a purchase, or has an employment, independent contractor, or consulting relationship directly or indirectly with Seller. Prospect shall be fully responsible for any breach of this Agreement by Prospect, Prospect's agents, representatives, or employees.

5. Information - All information and documents provided to Prospect concerning the Business is the property of Seller and must be returned immediately upon written request by Broker or Seller. Any and all representations and warranties shall be made solely by and between Seller and Prospect in a signed purchase/sale agreement and subject to the provisions thereof. Prospect fully understands that Broker makes no representations or warranties whatsoever, expressed or implied, to Prospect with respect to the Business and Confidential Information disclosed to Prospect. Prospect acknowledges that it does and will not rely upon any information, written or oral, furnished by Broker. Prospect understands that all information received must be independently verified by Prospect. Prospect acknowledges that all information furnished and/or received by Prospect is provided by Seller and not verified in any way by Broker or its agents, and that Broker and its agents are relying upon Seller for the accuracy and completeness of the information. Prospect agrees that any information and documents received by Prospect will not be used in any way to Seller's or Broker's detriment or liability, and Prospect agrees to indemnify and hold Broker harmless from any claims or damages from its use and/or reliance thereon. The provisions in this paragraph shall also inure to the benefit of Broker's agents.

6. Seller & Broker as Beneficiaries - Prospect acknowledges that Seller has the right to protect the Confidential Information and to obtain the benefits hereunder. and that Broker (and a cooperating/listing broker, if any) has the right to protect its interests and to obtain the benefits hereunder. Accordingly, Seller shall be considered an intended beneficiary hereunder. The fact that Seller, Broker, and a cooperating/listing broker (if any) is not a signatory to this Agreement shall not prohibit, alter, or limit Seller's, Broker's, or a cooperating/listing broker's right to enforce the terms hereof.

7. Representation - Prospect understands and agrees that Broker is an agent of the Seller. As such, Broker is not an agent or representative of Prospect. (The nature, extent, and scope of Broker's agency relationship with Seller and Prospect may be more fully defined in an Agency Disclosure Document, as appropriate.)

8. Advice - Prospect understands, agrees, and acknowledges that Prospect has been advised to consult an attorney and/or certified public accountant for assistance in reviewing and verifying the legal, financial, and/or any other pertinent information concerning the Business. Prospect understands and agrees that Broker is merely acting as a conduit of information and has not made any independent investigation of the accuracy of the information provided by Seller. Prospect agrees independently to verify all representations and warranties made by Seller and understands that Broker has not made nor will it make any verification or warranty regarding any information provided. Broker provides no legal, accounting, or tax advice.

9. Procuring Cause - Prospect hereby recognizes Broker as the procuring cause of any purchase or other act set forth in paragraph 2 above, and agrees for a period of two (2) years from the Effective Date not to deal directly or indirectly with the Seller, its agents, representatives, or assigns, without the prior written consent of Broker. If Prospect, or an entity in which Prospect has an interest, or person or entity introduced to the Business and/or Seller by Prospect, enters into a sale and/or purchase agreement, a management contract, or other financial arrangement with Seller with respect to the Business or part thereof, including leasing the Business premises from Seller or Seller's landlord, Prospect shall be liable to Broker for any and all damages Broker may suffer, including but not limited to the payment of the full commission due Broker under a separate agreement with Seller. To ensure the collection of its compensation, Prospect hereby grants Broker the right to place a lien on the Business assets which may be acquired by Prospect in violation of this Agreement, and Prospect agrees and does hereby appoint Broker its attorney-in-fact to execute all documents necessary to perfect such lien, and this Agreement shall be Prospect's consent to do so as required by any and all applicable statutes and laws.

10. Warrantees - Prospect warrants that the sole purpose of requesting and receiving information on the Business is to possibly affect a purchase, merger, and/or acquisition, and none other, and Prospect knows that Seller and Broker are relying upon such representations in disclosing the Confidential Information to Prospect. Prospect further warrants that it is financially capable of purchasing the Business, has not filed for an undisclosed bankruptcy, and has not been convicted of any felony or crime.

11. No Implied Waiver - Either party's failure to insist in any one or more instances upon strict performance by the other party of any of the terms of this Agreement shall not be construed as a waiver of any continuing or subsequent failure to perform or delay in performance of any term hereof.

12. Consent & Jurisdiction - This Agreement shall be governed by and construed in accordance with the laws of the State of California, and the parties consent and agree that Santa Clara County shall be the sole and exclusive venue for all proceedings relating to this Agreement and/or its subject matter, including without limitation the enforcement hereof. Prospect hereby waives all objections to establishing venue elsewhere. Prospect agrees that in the event of any breach or threatened breach of the confidentiality provisions contained herein, Seller or Broker may obtain, in addition to any other legal remedies which may be available, such equitable relief as may be necessary to protect Broker and/or Seller against any such breach or threatened breach.

13. Attorney's Fees - In the event of any dispute or litigation arising out of or relating to this Agreement, the prevailing party shall be entitled to an award of its reasonable attorney's fees, costs, and expenses incurred in both the trial court and appellate levels.

14. Copies - Prospect has received a copy of this Agreement, and a fax or electronically transmitted copy with signatures shall be considered as an original.

15. BUYER PROFILE: Our agreements with Sellers require that we obtain evidence of financial ability before disclosing the name and location of the business.

To identify your wants and better serve your needs, Transworld evaluates all prospective buyers. Please complete this form and return it either by fax or as a scan attachment to an email. Your information will be held in strict confidence and there is no obligation. [FORM & FNANCIAL STATEMENT FOLLOW]

Buyer represents that all data provided herein is true to the best of his/her/their respective knowledge.

Contributor: Business Broker, SF Bay Area

Business Brokers who are members of the California Association of Business Brokers use a confidentiality agreement form designed by their association. You will need to consult with an attorney to have him/her prepare the confidentiality agreement for you. Since Brokers are not attorneys or CPA they canít provide advice on this. If you prepare an ad-hoc form as confidentiality agreement then it may or may not be enforceable if it is not appropriately drafted.

Non-disclosure agreement is a legally enforceable contract that creates a confidential relationship between a seller and a buyer. By signing an NDA, buyer/s promise to not divulge or release information shared with them by the seller. If the information is leaked, the injured person can claim breach of contract. Contact your local business to obtain a copy of their NDA and a buyer profile.

An NDA stands for Non Disclosure Agreement- same thing as a Confidentiality Agreement. I have a form I use. Most important items are as follows:

Don't disturb the employees.

Don't disclose the sale to anyone.

Don't disclose any financial information except to your professional advisors.

Explain why it is important and if breached it could harm you and your business. You may want financial information returned if deal does not go through.

My form is one page.

The NDA aims to protect the seller's confidentiality by expressing that the potential buyer is not to disclose important information about the business, but it also protects the broker's commission. The NDA should explain what the monetary penalty should be for a buyer to acquire the business by bypassing the broker. A standard fee for a person who goes behind the broker's back and takes ownership of the business could be either $10,000 or 10% of the purchase price, whichever is greater, obviously this could be changed to whatever the broker wants to put in the language of the NDA. The broker should also file and keep track of NDAs after the listing contract is over, because there are times when someone will fill out an NDA and then the seller and buyer will wait out the listing contract, especially if it is nearing to a close, and purchase the business. The NDA should have some language which states that the person filling out the NDA cannot purchase the business without the broker for a certain number of months after the NDA is signed.

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Elizabeth McGovern: Escrow Services - SF Bay Area

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Helen Yoo: Escrow & Bulk Sale Services - Southern California

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Joe Sandbank, Esq. - Legal Services

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