A Confidentiality Agreement is a basic contract between the owner of the business and a prospective buyer. This contract states that the prospective buyer will not disclose any information which has been given or talked about in meetings in relation to the business which they are looking at buying and they will keep everything confidential about this business and the operations, staffing, financials, etc…
In a number of cases the Confidentiality Agreement also states that the prospective owner will not start up a business which is similar to the one which they are looking at in competition to the owner of the business.
This document is important because it contains the full details of the prospective buyer to all of you to research and make sure that they aren’t your competitor and it also works to stop the prospective owner from telling others about the sale of the business. This includes telling current staff members about the sale of the business which can cause a mass exodus. Because confidential information is given to the prospective buyer during the sales process, information like the operation of the business, clients, competition, marketing and sales methods may be discussed during the sale of the business and this information may be used to start up a competing business or may be passed on to one of your competitors which could be disastrous for the business.
An example of the basic text used in a Confidentiality Agreement is shown below, but for downloadable PDF versions of Confidentiality Agreements please see the links below:
I/We, being the people named in the Schedule set out below, acknowledge that we are prospective Buyers of the business as described below.
1) The business profile and material and all things connected and relating to this material are confidential and the intended purchaser(s) agree(s) not to disclose them to any other person except his/her legal, accounting, financial advisers and bankers being then only on the basis that they have to provide us with their agreement prior to receipt of the material to keep this information confidential unless prior written consent is first hand obtained from [Business Name] to disclose of this material to that party.
2) The intending purchaser(s) acknowledge(s), that as a result of perusing the business profile and any material, and during the course of the inspection of the business he/she will become aware of the information regarding the operation of the business and in particular that of the marketing and operations which is personal and which has real financial value to company mentioned above. The intending purchaser(s) acknowledge(s) that should such information become known to competitors or other parties interested in setting up a similar business in
opposition to [Business Name] or used by themselves in the operation of a similar business whereby these actions could cause financial hard ship then [Business Name] reserves the right to take legal action and seek compensation.
3) PRIVACY ACT - The intending purchaser(s) agree(s) to respect and safeguard the privacy of the vendor by returning any related material.