Confidentiality Agreements: What are the Most Important Elements?

Every business has to be concerned about maintaining confidentiality. When business owners are getting ready to sell their business, they often become somewhat obsessed with confidentiality.

It goes without saying that owners don’t want the word that they are selling to spread to the public, employees or most certainly their competitors. Yet, there is something of a tug of war between the natural desire for confidentiality and the desire to sell a business for the highest amount possible. At the end of the day, any business owner looking to sell his or her business will have to let prospective buyers “peek behind the curtain.” Let’s explore some key points that any good confidentiality agreement should cover.

At the top of your confidentiality list should be the type of negotiations. This aspect of the confidentiality agreement is crucial because it stipulates whether the negotiations are secret or open. Importantly, this part of the confidentiality agreement will outline what information can be revealed and what cannot be revealed.

Also consider the duration of the agreement. Your agreement must clearly define how long the agreement is in effect. If possible, your confidentiality agreement should be permanently binding.

You will undoubtedly want to outline what steps will be taken in the event that a breach does occur. Having a confidentiality agreement that spells out what steps you can take if a breach does occur will help to enhance the effectiveness of your contract.  You want your prospective buyers to take the document very seriously, and this step will help make that a reality.

Special considerations should also be clearly defined for the business in question. Patents are a good example. A buyer could learn about inventions while “kicking the tires,” and you’ll want to be quite certain that any prospective buyer realizes that he or she must maintain confidentiality regarding any patent-related information.

Don’t forget to include any applicable state laws, especially if the prospective buyer is located outside of your state.

A confidentiality agreement is a legally binding agreement. All parties involved must understand this critical fact. Investing the money and time to create a professional confidentiality agreement is time and money very well spent. An experienced business broker can help you navigate not just the confidentiality process, but also the entire process of buying and selling a business.

Copyright: Business Brokerage Press, Inc.

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