Why Effective Confidentiality Agreements Are Critical

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Two People Sharing Business Information

The very nature of selling an enterprise is such that it’s essential for the selling party to disclose pertinent business information that, in regular circumstances, is protected from the public and competing businesses.

In other words, all business owners who’re seeking to sell their enterprise have to face the risk of a potential buyer stealing their trade secrets, ideas, and/or commercial data. Quite possible to leverage it to gain a competitive advantage or drive down the value of the company.

Fortunately, there’s a way to effectively keep your business information confidential – a confidentiality agreement.

Over the course of this blog post, we’ll explain what a confidentiality agreement is, and why you need one when selling your business.

What Exactly Is A Confidentiality Agreement?

As defined by Investopedia, a confidentiality agreement is a contractual agreement that legally binds one or multiple parties to the non-disclosure of proprietary or confidential information. In the business sale process, it’s signed by the seller and any party that wishes to receive the sales memorandum — a document comprised of the initial business information provided to prospective buyers.

The confidentiality agreement protects your company’s goodwill as well as the pertinent business information that has been divulged to potential buyers. It’s an essential part of the business sale process that safeguards confidential business facts, data, and figures from competitor gain.

What Can Be Protected With A Confidentiality Agreement?

A confidentiality agreement can protect sensitive business data that is not available to the public. This can potentially include:

  • Financial data
  • Employee details
  • Supplier and customer information
  • New innovations or technology
  • Details of new products
  • Business plans

The Importance Of Having A Confidentiality Agreement When Selling Your Business?

Using a confidentiality agreement offers a myriad of key advantages, even if you’re selling to a party you trust:

  • The potential buyer may already be operating in the same sector or industry, and in case you don’t strike a deal with them, there’s little you can do to prevent them from using the information from the sales memorandum to gain a competitive edge.
  • If negotiations break down further down the process and you want to exit the deal, you have peace of mind knowing you can take legal action against the other party if they use the disclosed information for commercial benefit.

With over two and a half decades of industry experience, Gulfstream Mergers & Acquisitions is one of the nation’s leading business brokers.  We have the tools and the knowledge needed to help you get top dollar for your North Carolina business in a professional, confidential, and timely manner. Contact us for more information.

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