Selling a business - Non-disclosure Agreements

It can be exciting to have received an offer to sell your business.

With everybody wanting to move quickly in order to get the deal done, it can also be a stressful time. 

Tom Haywood, Associate in Wake Smith Solicitors’ Company Commercial team, and 2022 title holder of the Emerging Dealmaker of the Year, looks at a key point to consider before proceeding.

 
This article covers:

What is a Non-disclosure Agreement?

What could go wrong?

Consequences

What we can do?
As the seller, the buyer will normally send to you a questionnaire asking for all sorts of information and documents relating to the business. 

It is very important that before answering this, you consider carefully the risks and potential consequences of sharing the information. 

What is an NDA?
This is an agreement between you and the Buyer setting out the terms under which the information can be shared. 

It imposes obligations on them – for example, to keep the information confidential, to not share it, and to delete it on request.

It allows you to retain more control over the information.

What could go wrong?
The questionnaire – usually called “due diligence” often asks for extremely important and sensitive commercial information such as details of employees, customers and suppliers. 

This will be used to form the basis of the contract between you and the buyer. However, perhaps the deal doesn’t go forward – for any number of reasons.

The buyer will then have access to very important information about the business and could use that for their own purposes! They could approach staff or customers and try to get business from them.

It is important to prepare a non-disclosure agreement (NDA).

Consequences
If the buyer does share information without permission, you could sue him for breach of contract, or apply to court for an injunction requiring them to stop. 

However, an NDA is not a magic bullet. Once the information is known to the buyer they won’t be able to simply forget about it. They might still seek to use the information to their own commercial advantage.

Any information you share should be carefully considered and if appropriate shared over a period of time in order to build up trust.

The use of data rooms – tightly controlled shared web-folders – has increased, which allows sellers and their advisors to have more control over who has access to information.

What we can do?
We can provide you with a confidentiality agreement and negotiate this with the other side, as well as provide and manage a data room. If things did go wrong, we can also assist with potential claims. 

For further advice please contact a member of the Company Commercial team or call 0114 266 6660.

Published 17/02/2023