What Sellers Need to Know About Confidentiality Agreements

When it comes time to sell a business, owners are often faced with a major dilemma. They want to receive top dollar for the business they have invested so much time, talent and treasure into building. At the same time, however, most owners do not want their employees and clients/customers to know they are selling. They also do not want to reveal valuable information to potential competitors during the sales process. To resolve this issue, it is essential to have a strong confidentiality agreement that protects your business. Confidentiality Agreement

When it comes time to craft a confidentiality agreement, there are several key areas that should be addressed, including:

Information to be Disclosed: Your confidentiality agreement should cover what type of information you are willing to disclose to prospective buyers, and how this information will be delivered. For example, do you plan to publicize the sale or keep negotiations secret? If the negotiations are to be kept confidential, you need to decide when and where to present the information to buyers. Will you meet them somewhere offsite? Can you arrange to show them the business during off hours? These and similar questions should be answered up front.

When to Disclose the Information: You need to think carefully about when to disclose information to prospective buyers. For example, in the initial inquiry stages, you do not want “tire kickers” to know too much about your company. You may choose to reveal general information at first, just enough to show value and get buyers interested. Later, as prospects move further into the process, you can provide more details once you know they are qualified and are seriously interested.

Duration of the Agreement: You need to decide ahead of time how long you want your confidentiality agreement to be in force. For most sellers, it is prudent to make the agreement permanent, unless there are special circumstances that would call for the agreement to be temporary.

Protection of Trade Secrets: You might hold patents or copyrights, or have proprietary business processes that could be considered trade secrets. Be sure your confidentiality agreement protects any information you do not want your competitors to find out about.

Legal Compliance: There may be governing federal, state and local laws and regulations you need to comply with, depending on the industry you are in. In addition, if your buyer is based in a different state, you might need to take into account the laws of that state as well.

Enforcement: Your confidentiality agreement should provide strong legal recourse in the event that your prospect violates its terms and conditions. Though you may not be able to prevent a breach of contract, it is important to ensure that the prospect understands the importance of maintaining confidentiality, and the legal consequences of failing to do so.

A strong confidentiality agreement is essential to ensuring a successful business sale. Unless you already have specific expertise in this area, it is wise to work with a professional who can help create a rock-solid contract. A reputable business broker can provide the guidance you need. Business intermediaries understand the sales process, and what is necessary to fully protect the interests of the seller. They can also market your business to a wide pool of potential buyers while maintaining full confidentiality.

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