Crafting Confidentiality Agreements During a Business Sale

During a business sale or even a potential sale that’s in negotiations, a commonly vital element is confidentiality. There are several reasons why those selling or buying a business may not want word of this spreading, whether this is to the general public, current employees, or especially other competitors in the space.

At Utah Business Consultants, we’re here to help with these areas and more as you look to sell your business. We know that while confidentiality is important to you, it’s similarly reasonable to want to give potential buyers as much of an inside look at your business as you can to help facilitate a fair sale – with this in mind, here are some basics on crafting a confidentiality agreement that covers both you and other parties involved, something our business brokers are happy to assist you with.

Duration of Agreement

There are a couple broad factors you’ll want to determine right at the outset between yourself and any prospective buyers, and one of these is the duration of the confidentiality agreement. By far the most common format used here is a permanently binding agreement – all parties involved in the negotiation, whether or not it leads to a successful sale, will be bound to confidentiality in the areas discussed in perpetuity.

However, other options are available here. These should be defined strongly and clearly from the start.

Secret Vs. Open Negotiations

The other initial element to handle right away is the nature of the negotiations themselves. There are two options here: Secret or open negotiations.

Essentially, this is where you determine which parts of the negotiation can or cannot be revealed. This doesn’t have to be an all-or-nothing area – certain sections can be considered secret while others are considered open. This is particularly useful if you’re looking to allow the prospective buyer certain peeks behind your business curtain, but want to retain optimal privacy in other areas.

Steps in Case of Breach

From here, the primary meat of the agreement will be centered around what happens if a breach of the agreement takes place. You’ll lay out specific actions you can take if this happens, actions that should cause the potential buyer to take it very seriously. You can include direct damages you may be able to pursue legally if the agreement is broken.

Special Considerations and State Laws

While forming your confidentiality agreement, you always have to include any applicable state laws. This might get a bit more complex if the buyer is from a different state with different laws, but this is exactly what our brokers are here to help you with.

For more on crafting a reasonable and effective confidentiality agreement during a business sale, or to learn more about any of our business brokerage services, speak to the staff at Utah Business Consultants today.

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