Are you contemplating selling your business? Have you started negotiations with another party regarding the potential merger or acquisition? Don’t continue unless you have taken the appropriate steps to protect yourself and your business. Confidential and proprietary information is what makes your business unique and adds value as compared to your competitors. Your first priority should be protecting the areas you and your business have compiled over the years to drive your success. These items include financials, customers, contracts, marketing methods, and process steps.
Non-Disclosure Agreements or Confidentiality Agreements (NDAs) should be the first step in any pre-discussion on selling your business. This is true whether you are selling to an outside competitor, internal employee, or any other individual or business. NDAs are essential if you want to make sure the other party is bound to respect the confidential information you may provide in discussions or negotiations. They also prevent the other party from using the confidential information against you or for their direct benefit if the deal doesn’t go through. Typically a local competitor is not your best option in selling your business. However, we have heard more than once about situations where negotiations have begun with a competitor or with an internal employee without having an NDA signed. The standard practice in mergers and acquisitions is to have an NDA in place. You should always use one when opening up discussions.
There is no ‘standard NDA’ unfortunately. You can find a form of agreement in many places, but it does not mean it will cover your business appropriately. However, key items that should be in every NDA are:
- Identification of the parties.
- Definition of what is included to be confidential.
- The scope of the confidentiality obligation by the receiving party.
- The exclusions from confidential treatment.
- The obligation to return or destroy confidential information when requested by the disclosing party.
- The term of the agreement.
The most important aspect of the NDA when selling your business is that it makes you as the business owner stop and think, “How comfortable am I releasing this information to another business or individual?” If it gives you pause then there may be other items to discuss and work through with your legal advisor even before jumping into preliminary disclosures and negotiations.
At NC Planning we operate as advisors under a general counsel approach and relationship. We place ourselves as part of your internal team, but on an external and fractional basis to keep costs low, known, and fixed. Give us a call as we’d love to explain more.
Our attorneys are here to help you plan and strategize for the future of your business and your personal planning.
