In order to sell a business, confidential information will need to be disclosed to prospective buyers.  They need to examine the company information to assess the business and determine whether they’d like to make an offer.  Below are the basics on the key elements of the strong Non-Disclosure Agreement (NDA) you will need when selling a business.

Parties.  Any NDA should start by identifying the parties involved.  When a business is for sale, the company name, location as well as other information are almost always kept confidential.  Your M&A advisor will likely structure the NDA to be between them and the potential buyer, using a reference number to identify your business listing.

Define “Confidential Information”.  The NDA needs to specify what information is considered confidential and clearly state any exemptions.  A common exemption is for publicly available information.

Disclosure Terms.  A strong contract needs to clearly state the signer will not disclose or use confidential information provided without express written consent from the seller.  The terms often include exclusions to this for advisors which may include lawyers, accountants, and directors, among others.  These parties are also bound by the terms of the agreement.

Term of Agreement.  This clause identifies how long the agreement will last.  Industry standard is 2 years, but it is desirable if it can be longer.  Our M&A firm keeps NDAs in effect for a three year term.

Canceled Deal.  The Non-Disclosure Agreement should include requirements to return or destroy and the method for returning or destroying all confidential information disclosed to the buyer should a deal will not be struck between the parties.

This is a part of our 3-part Confidentiality Series, check out Why Confidentiality is Key When Selling a Business and next week’s article on: How to Maintain Confidentiality When Selling a Business