What is a non-disclosure agreement?

A non-disclosure agreement (NDA), also known as a confidentiality agreement (CA), is simply a legal contract or agreement between the seller and potential buyer of a business that outlines the confidential material a seller wishes to disclose to a potential buyer, but wishes to restrict to third parties. An NDA creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. As such, an NDA protectsnon-public business information,such as the fact that your business may be for sale.

Do I have to have a buyer sign an NDA?

No, you do not absolutely need to have a buyer sign an NDA. However, it is a good idea, especially if you are disclosing proprietary or confidential information. Nearly every business broker requires an NDA before releasing information to a potential buyer, however, if you are selling your own business then you have discretion as to when and if you ask the buyer to sign it.

How can I get a potential buyer to sign my NDA?

1.By fax– You can email the buyer the NDA and have them sign it and fax to you in return. While this works, not all people have a fax machine and printer so you will lose many buyers using this process.

2.In person– You can tell the buyer a little information about the business on the phone and then request that the buyer come phsyically see you. When you physically meet with the buyer you can then request that he/she sign the NDA in person. Just be sure you do not disclose anything highly confidential on the telephone before you meet with the buyer and he/she signs your NDA.

3.Electronically– This is our preferred method. This is the quickest, easiest, and probably most secure method. We do offer this as a service for our clients and business owners who are selling their business on their own. Please contact us for more information.

What does the NDA cover?

You can include any language that you like in your NDA. We suggest you view our free basic NDA below to view the language and see what it includes and does not include.

A non-disclosure agreement can protect any type of information that is not generally known. However, non-disclosure agreements may also contain clauses that will protect the person receiving the information so that if they lawfully obtained the information through other sources, they would not be obligated to keep the information secret. In other words, the non-disclosure agreement typically only requires the receiving party to maintain information in confidence when that information has been directly supplied by the disclosing party. Ironically, however, it is sometimes easier to get a receiving party to sign a simple agreement that is shorter, less complex, and does not contain safety provisions protecting the receiver.

Any non-disclosure agreement should cover the following, at a minimum:

  • Outlining the parties to the agreement
  • The definition of what is confidential, i.e. the information to be held confidential. Modern NDAs will typically include a laundry-list of types of items which are covered, including unpublished patent applications, know-how, schema, financial information, verbal representations, customer lists, vendor lists, business practices/strategies, etc.
  • The disclosure period – information not disclosed during the disclosure period (e.g. one year after the date of the NDA) is not deemed confidential
  • The exclusions from what must be kept confidential. Typically, the restrictions on the disclosure or use of the confidential data will be invalid if:
  • the recipient had prior knowledge of the materials
  • the recipient gained subsequent knowledge of the materials from another source
  • the materials are generally available to the public
  • the materials are subject to a subpoena – although many practitioners regard that fact as a category of permissible disclosure, not as a categorical exclusion from confidentiality (because court-ordered secrecy provisions may apply even in case of a subpoena). In any case, a subpoena would more likely than not override a contract of any sort
  • The term (in years) of the confidentiality, i.e. the time period of confidentiality
  • The term (in years) the agreement is binding
  • The obligations of the recipient regarding the confidential information, typically including some version of obligations:
  • to use the information only for enumerated purposes
  • to disclose it only to persons with a need to know the information for those purposes
  • to use appropriate efforts (not less than reasonable efforts) to keep the information secure. Reasonable efforts is often defined as a standard of care relating to confidential information that is no less rigorous than that which the recipient uses to keep its own similar information secure; and to ensure that anyone to whom the information is disclosed further abides by obligations restricting use, restricting disclosure, and ensuring security at least as protective as the agreement.

Do most NDA’s include a non-compete clause?

Most NDA’s do not include a non-compete clause as many buyers will refuse to sign it. A non-compete clause within an NDA would restrict the buyer competing in yours or a similar business if he/she does not wish to purchase the business.