A non-disclosure agreement prevents parties who are working on a particular thing from discussing any internal details, ideas, events, etc. with any external third party. In the case of a business sale, this means that none of the parties who were subject to the sale, i.e. the seller and the buyer, may disclose the information of the sale to the public. This will remain enforceable and in place until that knowledge, by whatever means, becomes public. If never revealed to the public, an NDA legally obligates both parties to never disclose the sale to any external third party.
Why are there NDAs in business sales?
The buying and selling of businesses typically raise a lot of eyebrows, as the market is an extremely competitive place. As a result, when a party decides to purchase a business but doesn’t want its rivals and competitors to know about its secrets, they typically ask for a non-disclosure agreement, or NDA for short. Additionally, this also means that the seller is obligated to keep any information on the functioning of the business, as well as the trade deal itself a secret until the NDA expires. Moreover, the seller may not want to reveal the sale price, as he might plan on simply adopting a buying-low-selling-high model. For these reasons, he would like to protect his investment and would insist on an NDA to keep all of the relevant financial information protected. Generally, when one party wishes to keep certain aspects of the deal under wraps, they insist on an NDA. This makes the party that reveals the protected information legally liable, as it would constitute a breach of the agreement.
Drafting a business sale non-disclosure agreement
An NDA in the realm of business sales is much like an NDA in any other field! In fact, NDAs are simple agreements that can be drafted without any legal expertise. That being said, the buyers (and sellers) should keep in mind that there are primarily two types of NDAs – separate NDAs and NDAs laden into the sale contract. For the purposes of this article, we’ll stick to separate NDAs. To get a better idea of what an NDA should look like, download the following templates. Using this as a model, you can draft your very own business sale non-disclosure agreement.
FREQUENTLY ASKED QUESTIONS
Whenever there are multiple parties working on something, an NDA may be used to bind all of them from disclosing any internal details to any external parties. As a result, an NDA may be used when that is desirable – In business sales, an NDA commonly precedes closing the deal.
This largely depends on the nature of the operation in question. For movies, general convention dictates that an NDA be applicable for at least a few months after the release of the film. In other industries, this timeframe can vary. In some industries, NDAs are signed until death as well.
When an NDA is violated, the party breaching the contract is liable, legally speaking. The punishment and damages are usually decided in advance and are embedded in the contract. In case of a breach, the party will usually have to pay the other party in damages, unless the breacher prefers incurring legal damages instead.