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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.
How?
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.
Michael Monnot
941.518.7138
Mike@infinitybusinessbrokers.com
12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907
Hello there, My name is David, I am looking around the US to acquire Food Distribution Business.
However it is my first purchase (I am still looking), I have a question regarding NDAs though since I saw your website on the NDA Post.
I met a broker that wants me to sign a NDA with him (The broker) instead of the seller before actually revealing details to me , I did signed it but am just curious is that the way to go about it?
Is it normal to sign a NDA between broker & Buyer or usually do we sign an NDA with the seller directly?
Or do we actually sign an NDA with the broker and then before meeting seller for confidential documents we sign another NDA with the seller?
Which is which?
Also please do get back to me if you have food distribution business that is promising.
David
I cannot answer for others on how and why they do things but it would depend on several factors.
Signing an NDA with the broker vs the seller:
This is absolutely correct. What the broker is doing here is protecting the seller by having you sign it upfront. If you found out the business prior to or were asked to sign an NDA directly with the seller you would already know what the business is, and the main thing we are trying to achieve is to keep the sale of the business confidential from anyone that has not signed, has not been qualified…
So the process is typically to discuss the business with the broker/agent, depending on what they or the seller would like to see, the size of the business…they also may ask for supporting documentation such as a personal financial statement, resume/CV…But typically once the NDA is signed the business name and additional information would be provided upfront.
This information varies widely between businesses, brokers and sellers so you may get an information packet, you may get tax returns; so just be patient and ask questions during the process.
If you cannot open the lines of communication with a particular agent/broker it maybe time to move one. Find a broker that you feel comfortable with, have them work with the brokers to gain information, ask questions and qualify the business for you, that is what we are here for.
Thank you and good luck in your search.
Hi I am just wondering about any legal repercussions of me signing the NDA if for example one of the other potential buyers is not discreet .Could I be held liable if it cannot be verified as to how any confidential information was leaked out .?
Thanks
More than likely yes, there could potentially be legal repercussions but without seeing the NDA I could not definitively answer either way. To protect yourself I would ask your broker to issue an NDA to each one of your partners or whomever you are sharing the information with to protect you as you have signed the NDA that likely states you are responsible for any damages, this way each individual is signing and hence they should likely be responsible for their actions instead of you.
Hello,
I’ve got a question or two please? I’m relatively to the whole brokerage aspect of things.
If there are more than one broker in the chain, for example 3/4, should each of brokers sign an NDA with one another or if we source a potential buyer/seller, should we all wait for things to be confirmed first before all signing an NDA? Sorry if that doesn’t make sense.
It would be amazing to have a mentor or something to take advise from. I don’t know if it makes a difference, but I’m based in the UK.
Thanks
I can only tell you what is typical in Florida. We are part of an organization, much like the board of Realtors but rather for business brokers, and within our system there are codes of ethics, rules…that we must cooperate with each other so we do not necessarily need the brokers to sign an NDA. If we go outside of our system most brokers have agreements with their sellers and most of the time we do not have each other sign NDA’s, but occasionally it is requested. If there is not a proper agreement with your seller/buyer I would probably recommend an NDA so that others are not trying to circumvent each other, especially if there are more than just one buy side broker and one sell side broker.
Again this is my opinion and based on my experience in Florida.
Good luck to you!
I’m looking in to purchasing an existing business and was asked to sign an NDA prior to receiving any additional information. The NDA has non compete verbiage that would prohibit me from opening a similar establishment in a three year window. My question is; if after seeing the financials and a snapshot of the business and I’m not comfortable going forward with the acquisition, am I not allowed to go a different route in opening a similar business? Is this common in NDAs? Is it exclusive to the state I live in?
I am not an attorney and I do not have the language that you referring to, but there are clauses that should be present within an NDA that would prevent a buyer from using the information provided to compete against the seller.
As an example, it would not be in good faith if you were signing NDAs for a specific industry that you knew you were going to start on your own and attempting to obtain trade secrets, processes…I would have to assume it would have to be a very specific instance to prevent you from starting a similar business along with the onus on the seller to show that you misrepresented yourself, are using their trade secrets, processes or procedures…
You would be best suited to run this by a trusted attorney in your area to get clarification to ensure your states laws, norms and practices.