Keeping Your Business Information Secret When Selling Your Business
Unfortunately‚ there is no 100% way to guarantee that your business information won’t be used against you. That being said‚ you can take measures to substantially reduce the odds that your competitor will get his hands on your business information and use it to your detriment.
1. Non-disclosure Agreements – a non-disclosure agreement is an agreement signed by a party receiving information which states that the recipient of the information will not disclose this information to any third party or use the information for their own personal gain. Although there are certain instances where courts will choose not to enforce a non-disclosure agreement‚ in the context of business sales‚ many properly drafted non-disclosure agreements will be enforceable against someone trying to use the information he obtained during the due diligence process while purchasing a business. I emphasized the term “properly drafted” because I have seen too many non-disclosure agreements that would probably not be enforceable to the fullest extent because of drafting errors or omission of required language. The bottom line is that a non-disclosure agreement is an absolute must before you disclose any of your business information to a potential buyer or a potential buyer’s agent (including a potential buyer’s accountant‚ financial advisor and attorney). Are Confidentiality Agreements Enforceable When Selling A Business?
2. Encourage On-sight Review of Documents – having the information available to a prospective buyer within your location is a great option if you are concerned about the information being duplicated. Allowing for an on sight inspection keeps you in control of the information while allowing the prospective buyer to review the information she needs.
3. Avoid Electronic Disclosure When Possible – due to the ease of transmitting the information via email or other electronic means‚ in the event you need to send information to the prospective buyer‚ preparing hard copies and sending the documents by mail would be a better option.
4. Marking the Information “Confidential” – when preparing materials for disclosure‚ it is important to mark the copies as “confidential”. When a court determines whether a non-disclosure agreement is enforceable‚ it will look to how the discloser of the information (you) treated the information. If the information was freely given or accessible to outsiders or those within the organization‚ the court is less likely to treat the information as confidential and less likely to enforce the agreement. However‚ if the information was treated like confidential information‚ courts are more likely to view it as such which increases the odds that they will find the agreement enforceable. Additionally‚ the “confidential” markings on the agreement will put all others on notice that the information they are receiving is confidential and will reduce the odds of that person using it for their own beneficial purposes.
5. Watermark the Information Disclosed – In addition to marking the information “confidential”‚ the documents should be watermarked with some information that would help identify who the recipient was in the event the documents were copied by others.
Like anything else in this world‚ nothing is guaranteed but it is your responsibility to reduce the odds of your information being misappropriated. You have to treat your internal business information (even if you decide not to sell your business) as if it is your livelihood‚ because for most business owners‚ it is. If you are interested in more information on selling your business‚ you can download ENDWISE the guide to selling your business with peace of mind.
By Brian Lincer March 18, 2014
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