The short answer is YES. You absolutely do.
The NDA (Non-Disclosure Agreement) is a crucial step. It is a legally binding document that protects both you and the seller. This agreement shields the seller from those who have no real interest in actually buying the business, and protects you as the buyer from a business that may seem fine from the outside, but is hiding major problems.
In a business transaction, it is necessary for a potential buyer to see the financial records of that business, but a seller does not want to disclose such proprietary information to just anyone. If it is determined that you are a credible buyer, you will be given the opportunity to sign a NDA so that you will have access to the business’s information.
The NDA ensures that any buyer who is given access to the financial and/or proprietary information disclosed by the seller will not disclose that information to any party who hasn’t also signed a NDA. This is necessary to keep the for-sale status of the business confidential and protects the seller and the business from potential harm that an inappropriate disclosure might cause.
The parts of a NDA are as follows:
- The location, name, and type of business.
- The length of the agreement, typically several years.
- A list of those who are party to the agreement.
- What information cannot be disclosed (like financial records, contracts with staff and suppliers, etc).
Any buyer who refuses to sign a NDA is usually considered to be unnecessarily difficult and any business broker worth their salt will refuse to work with you. The NDA keeps the business you are trying to buy safe from those posing as buyers and from the disastrous consequences of a breach of confidentiality. If you consider yourself a serious buyer, be prepared to sign the NDA.
Are you thinking about buying a business and are worried about the legal repercussions of the NDA? Would you like to know more about how the NDA is good for business buyers? Ask us! Please leave questions or comments here and we would be happy to help.
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