Confideniality in Business Sales

What you need to know about Confidentiality Agreements

Whether you’re in business and dealing with vendors and employees or you’re buying or selling companies, discretion and confidentiality can be a valuable commodity. A number of reasons exist for keeping things confidential as you work through processes or negotiate a deal, but you can’t always rely on the fact that someone else will naturally understand the need to keep information between certain parties.

Reasons that someone might share information you deem sensitive or confidential in nature could include:

  • They don’t have the same sense of import regarding the information and simply didn’t realise it should have been confidential
  • They slip up and share the information by accident
  • They are tricked into sharing the information
  • They share data on purpose with a desire to hurt or hinder your business or agreement, or because they simply don’t care that you prefer the information remain confidential.
  • To keep any of this type of sharing from occurring, you might consider requiring a confidentiality agreement.

What is a confidentiality agreement?

A confidentiality agreement is a legal document or contract signed by all applicable parties. It’s also sometimes referred to as a non-disclosure agreement. The contract states that all parties to the agreement commit legally to hold the defined information confidential. That doesn’t mean the parties won’t use the information or even speak of it, but they agree to do so following the rules and requirements set out in the agreement.

Typically, a confidentiality agreement must define the data that is considered sensitive. The contract might spell out specifics about what data can’t be shared, such as the fact that the parties are entering into a business transaction and the details and price associated with that transaction. Most confidentiality agreements also give some overarching definitions of what can’t be shared. The contract might specify that no information related to a person’s job or company processes may be shared with entities that are not also employees or vendors of the company, for example.

It’s important to define any information you want to remain confidential within the contract. Failure to include it might mean the data isn’t protected by the agreement.

Who is covered under the agreement?

The contract defines which parties are covered under the agreement. Typically, the parties who sign the agreement are directly covered under the agreement. That means that if one party breaches the contract, by disclosing confidential information covered in the agreement, any of the other parties have legal recourse against the breaching party. In short, it usually means they can sue the person who shared the information or caused it to be shared. Legal recourse might also involve a way to get out of the contract.

When the parties signing the confidentiality agreement are business owners or representatives of the business, there may be some expectation that their respective staff will be privy to certain details. The agreement may require that staff or other necessary individuals all sign separate confidentiality agreements or that the parties to the original agreement take legal responsibility for any breech that occurs on their end.

What are the obligations of the parties covered under a confidentiality agreement?

The obligations of the parties are to use the information covered by the confidentiality agreement only in the ways that are allowed under the agreement. They also must take reasonable precautions to safeguard the confidentiality of the data.

For example, if you were negotiating with someone to buy their business, you would be able to use any information associated with that negotiation in activities that were directly related to buying the business. The seller might ask that you keep the price and due diligence information, such as the review of their accounts, confidential. You might have to share them with your broker, accountant or funding source to proceed with the purchase. You would not, however, be allowed to share that information with your social network or even future customers unless the agreement included such a provision or was expired.

More information at Link Business.

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