NON-DISCLOSURE AGREEMENT for a Business Acquisition

Contact Neufeld Legal PC for corporate transactional and legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

A Non-Disclosure Agreement (NDA) [also known as a confidentiality agreement], is one of the first and most critical documents exchanged during a business acquisition. The purpose of an NDA is to protect sensitive and proprietary information about a business from being disclosed to unauthorized parties.

For a proposed business acquisition, the seller will be sharing a significant amount of private data with the potential buyer, including financial records, customer lists, intellectual property, and operational details. Without an NDA, this information could be used by the buyer for other purposes, such as competitive gain, if the deal falls through.

The key components of an non-disclosure agreement for a proposed business acquisition include:

• Parties to the Agreement: Clearly identifies the "Disclosing Party" (the seller, who is sharing the information) and the "Receiving Party" (the buyer, who is receiving the information).

• Definition of Confidential Information: This is the core of the agreement. It should be a broad but clear definition of what constitutes "confidential information." This often includes:

  • Financial information (e.g., balance sheets, profit and loss statements, tax returns).

  • Proprietary business plans, strategies, and marketing materials.

  • Customer lists and vendor contracts.

  • Trade secrets, patents, and other intellectual property.

  • Employee information and compensation data.

  • The very fact that the business is for sale and that negotiations are taking place.

• Purpose of Disclosure: States that the confidential information is being disclosed for the sole purpose of evaluating a potential acquisition and for no other reason. This prevents the receiving party from using the information for competitive or other purposes.

• Obligations of the Receiving Party: Outlines the specific actions the buyer must take to protect the information. This usually includes:

  • Keeping the information strictly confidential.

  • Not disclosing the information to any third parties without the seller's prior written consent.

  • Only sharing the information with employees and advisors (such as lawyers, accountants, and bankers) on a strict "need-to-know" basis.

  • Ensuring that any such employees or advisors are also bound by confidentiality obligations.

• Exclusions from Confidentiality: Specifies the types of information that are not considered confidential. Common exclusions include information that is:

  • Already publicly available.

  • Already known to the receiving party before the disclosure.

  • Lawfully obtained from a third party without a breach of confidentiality.

  • Independently developed by the receiving party without the use of the confidential information.

• Term of the Agreement: Defines how long the confidentiality obligations will remain in effect. This is a key point of negotiation. The seller will want a longer term (e.g., 2-5 years or even in perpetuity for trade secrets), while the buyer will want a shorter term.

• Return or Destruction of Information: Requires the receiving party to return or destroy all confidential information (including all copies) if the acquisition does not proceed.

• Remedies for Breach: States what will happen if the NDA is violated. This often includes the right for the disclosing party to seek financial damages and, importantly, to seek injunctive relief to stop the unauthorized use or disclosure of the information.

• Non-Solicitation and Non-Compete Clauses (Optional): Sometimes included in an NDA, particularly in an acquisition scenario.

  • Non-Solicitation: Prevents the potential buyer from hiring the seller's employees or soliciting their customers for a specified period if the deal does not close.

  • Non-Compete: Less common in a standalone NDA, but a seller might attempt to include a clause to prevent the buyer from using information to compete directly with the seller's business for a certain period.

Mutual vs. Unilateral Non-Disclosure Agreements:

• Unilateral NDA: This is the most common form in a business acquisition. Only the potential buyer (the receiving party) is obligated to keep the information confidential.

• Mutual NDA: This is used when both parties will be sharing confidential information. For example, if the buyer is a private equity firm that needs to disclose its financial standing or investment strategies to the seller to build trust and show seriousness.

When it comes to the legal component of corporate mergers & acquisitions, that is when the law firm of Neufeld Legal P.C. comes into play. Such that when your company is seeking knowledgeable and experienced legal representation in orchestrating and completing business mergers, acquisitions and divestitures, contact us at trong>403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.