One of the most important documents when buying or selling a business is the Non-Disclosure Agreement (NDA). The purpose of the NDA is to protect the financial and intellectual property rights of the company that is for sale.
Buyers will be asked to sign a NDA at the time of their first inquiry The name of the business, its location or any identifying information is withheld until the NDA is signed. This is a legally binding contract between the seller and the potential buyer. A buyer who refuses to sign the NDA is considered difficult or non-serious and will not be provided with any further information on the offering.
This NDA requires that buyers keep confidential any information they learn in the process of their investigation. It will typically identify remedies in the event the buyer or his/her agents violate the covenants of the agreement.
There are many reasons why a seller wants to keep the sale of their business confidential.
Clients/Customers become concerned if they hear a business is for sale. They will worry that new ownership may not complete work or honor promises and warranties.
Employees can become anxious about their job security. This may lead them to seek other employment. A decline in productivity, increase in absenteeism and employee theft are other potential downsides.
Competitors may use the information to gain a competitive advantage or poach key employees.
Vendors may become concerned about receiving payment and withdraw terms cutting into cash flow.
Lenders and Creditors may turn terminate credit lines leading to a further cash crunch.
Unscrupulous buyers may use any information they obtain to compete with or otherwise harm the interests of the seller.
If word gets out that a business is for sale it can destroy the business leaving nothing to sell. For this reason, sellers and the Business Brokers representing them take confidentiality very seriously.