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Non Disclosure Agreement

Tags: buying a business, non disclosures, selling a business

Comments & Replies: 3     Views:     Post ID:     Comments About This Glossary Term

Contributor: SF Bay Area Business Broker
I often get buyers asking for general information before signing an NDA. They claim that they just want general information about the business and once those questions have been answered, if they want to move forward they will sign the NDA. This is acceptable in some cases but not much more can be answered than is already available in the business for sale advertisement.Therefore a lot of time can be wasted playing phone tag, and talking on the phone going back and forth about not being able to answer certain questions etc.

If you are serious about buying a business, there should be no issue signing an NDA.

I once had a buyer who claimed that the NDA limited him, in case he wanted to open a location nearby, he wouldn't be able to since it could be construed that he used the information gained was used to open a competing business.

However, the business seller is not here to provide you with decision making criteria for opening your business. The business seller and intermediary have the sole purpose of selling the business to a willing, able and ready buyer. There is other information available to help your decision making process, without asking a seller and intermediary to do work for you for free, so you can open another business.

If you are serious about buying a particular business, there is no good reason to not sign the NDA. If you refuse it is most likely because you are not a serious buyer.

Buyers often miss really good opportunities to buy a business because of a misguided apprehension about signing a reasonable Non-Disclosure/Confidentiality Agreement ("NDA"). This is common practice in many industries and disciplines, and it protects both the seller AND the buyer. How does it protect the buyer? In almost no circumstances should someone buy a business where the sale has not been kept confidential; significant harm can be done to the business--employees looking to or planning to leave, customers seeking other sources, competitors planning on targeting the selling company's market, suppliers looking to re-negotiate prices and terms. And, all of those hidden problems will often only surface after the business has been transferred.

So, buyers, sign the NDA; if in doubt, talk to a lawyer. But, if you're serious about buying a business from a responsible and prudent seller, the only way the seller knows you're serious is by you signing the NDA.

Most people interested in buying a small or mid-sized business realize that the sellers they meet have an interest in maintaining confidentiality about the fact they are selling and about the details of their businesses. They protect themselves by asking any interested buyers to sign a (NDA) non-disclosure agreement before providing any information, including the name and location of the business and some of the facts about its financial performance.

A seller should insist that any interested buyer sign the NDA before any information about the business is revealed, and should also insist that any intermediaries talking to prospective buyers about the company obtain the signed agreement.

There are several NDA forms but all of them contain language stating that the prospective buyer, in return for information about the business (which is named in the NDA) agrees not to reveal any of the facts regarding the company, including the fact it is for sale. Most NDAs also state that the buyer will only discuss the business with a trusted professional (usually his or her lawyer or accountant), and that the buyer understands he or she may be legally liable for violating the agreement and responsible to reimburse seller for any losses incurred as a result of the violation.

Some NDAs specify the kind of information that is not to be disclosed. When used in connection with the introduction of a business offering, that information will relate to the proprietary material about the business - such as its financial performance, customer list, methods of operating, details about employees, premises lease and other facts involving the business operating particulars. The NDA might also state a time limit during which the agreement is in force.

Business intermediaries using the NDA often add to it that the buyer acknowledges being introduced to the business by the intermediary. This helps to protect the intermediary's commission claims, should that buyer purchase the business.

The extent to which a NDA is enforceable varies from state to state, and on precedents of the court that is presented with the matter. In theory, a seller can get an injunction forbidding someone who is violating a NDA he or she signed, from continuing the violation. Another remedy is for a seller to show a court the extent of his or her loss because the NDA was violated and request that the violator reimburse the seller for that loss.

Note that NDAs are used in many situations, in industry, academia, science and other disciplines where someone is provided knowledge but must sign a NDA beforehand.

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