Non-Disclosure Agreements: Do I Need One When Selling My Business?

June 11, 2024

Non-Disclosure Agreements: Do I Need One When Selling My Business?

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By Siobhan Williams

Non-disclosure agreements (NDAs) are crucial in business sales. At the early stages of selling your business, you will be obliged to provide a lot of commercial and otherwise confidential information about your business – ranging from information about your finances, your staff and key commercial agreements.

NDAs ensure that when sharing this information, you can be assured that it is kept confidential. Our corporate and commercial team have summarised the key elements to protect your business when entering into NDAs.

What are NDAs?

NDAs are legal contracts which facilitate the sharing of confidential information between parties.  Sometimes it is necessary to share information about your business which you would usually want to keep confidential.  In the context of selling your business, a buyer will want to go through a due diligence process, which will require you to share lots of information about your business.

Naturally, you will want assurances that the information shared will be kept confidential.  Therefore, an NDA is a useful tool to set down contractual obligations on the buyer to maintain the confidentiality of the information shared. These obligations include limiting how the third party can use or record the confidential information and will give you a right to request the third party to return or destroy the information upon any future request.  Crucially, it will also set out who the information can be shared with – ideally, you would want that limited to such of the buyer’s employees and advisers who need to know the information for the purpose of evaluating the proposed acquisition of your business.

When should the NDA be entered into?

Ideally, you want to ensure that the NDA is signed before you share any information.  Whilst it is possible to provide in the NDA that all information is covered by its terms (even if it was shared before the NDA is signed), that is a riskier approach as there is no guarantee the NDA will be signed.

Key clauses to look out for in an NDA:

• Identifying the confidential information. The definition should be wide enough to encompass all the information that you are intending to protect.
• You should ensure that the NDA contains a clearly defined timeframe both in terms of how long the agreement will be in force for, and how long the duty of confidentiality will remain in force after expiry of the agreement.
• Use of the information. The permitted use of the information must be specific in order to protect your interests. This should be limited to evaluating and progressing the transaction.
• Who the information may be disclosed to. This should be drawn as narrowly as possible.
• A well drafted NDA will set out that a business can claim damages and obtain an injunction order if there is a breach of an obligation.
• As a seller, you will want to ensure that you exclude any warranty that the information shared is accurate.
• Return of the Information. The NDA should specify how and when the confidential information needs to be returned or destroyed by the receiving party.

How should confidential information be shared with a buyer?

We would also recommend sharing information via a secure data room, rather than relying on other solutions.  This will ensure that the information is kept secure and you can control and monitor who has direct access rights.  It will also enable you to remove access immediately if the transaction falls through for any reason.

In relation to personal data of individuals (such as your employees) you should ensure that this information is still anonymised before being shared in order to ensure compliance with data protection legislation.

NDAs are legally binding contracts which provide a level of certainty and security to parties entering into commercial relationships. It is important that they are drafted to be legally compliant and that both parties understand what they are agreeing to do.

If you require assistance with drafting non-disclosure agreements or any legal advice on your rights under one, contact Siobhan Williams on 029 2082 9124 or swilliams@darwingray.com for a free initial chat to see how we can help you.