Maintaining Confidentiality When Selling Your Business

Posted by Brandon Cole on Friday, October 13, 2017

If you are looking to sell your business, there are many things to consider. One of these considerations is confidentiality. Before a deal is completed, a prospective buyer will likely want access to private information regarding your business. For instance, a prospective buyer may want to review your key clients, contracts, and financial records. This review will ultimately allow the prospective buyer to further evaluate your business and see if they want to proceed with a deal.

As a result, it is important to draft and execute a confidentiality agreement before any serious discussions with prospective buyers begin. Confidentiality agreements have the benefit of keeping your business’s sensitive information private and also any discussions of a possible deal private. The prospective buyer is then able to use the information from you for the sole purpose of evaluating a possible deal. Confidentiality agreements can also have other protections. For example, it may make sense to include a “no-poach” provision, which limits a prospective buyer from later hiring your top employees. If a prospective buyer breaches the confidentiality agreement, you will have the ability to take legal action for any harm caused to your business.

Without a proper confidentiality agreement, a prospective seller may suffer from unintended consequences. For instance, oftentimes competitors are among the most interested prospective buyers. If valuable information is given and a deal is not ultimately completed, a competitor could later use the prospective seller’s information (such as client lists) for their own advantage. It is also possible that employees will find out that the business may be sold and become worried about a change in management. This can result in lost productivity or valuable employees seeking employment elsewhere. 

As you can see, a confidentiality agreement can help protect business owners during the sale process. For assistance in drafting or reviewing a confidentiality agreement, please contact Brandon Cole or any other BrownWinick attorney.