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Importance of NDA While Selling Your Business
  • 3 months ago

The excitement of impending early retirement or a world tour in the offing can make you spill the beans about your business selling process in the wrong way. It is not unusual for people to go a little off balance when they are expecting a considerable sum of money and relinquishing their labour of love. However, you will have to face some severe consequences if you are unable to hold back your enthusiasm and keep talking about the big sale. The most disastrous result of this candid marketing can lead to a disconcerting environment in the company and a distressed reaction from the employees, suppliers and stakeholders who would be worried about the uncertainty related to the new management.

Thus it is recommended to keep the news of businesses for sale in Australiaunder wraps until you find a qualified buyer. Also, the secrecy is not confined to this point; you need to make sure that the prospective buyer doesn’t reveal any confidential information that can lead to losing out on better deals or incite aggressive marketing tactics from competitors which can decrease the market share of the brand.

Moreover, the potential buyers may feel a bit apprehensive about the purchase process if they get a whiff of pertinent information being leaked into the market. Also, a premature leak of the forthcoming trade can lead to depreciation in the value of the business. Thus to save the company from the harmful effects of the revelation of business data, the seller must maintain the confidentiality of the sale with utmost discretion.

For this purpose, the seller must stick to blind advertisements which do not give out the name and address of the company until they find qualified buyers. Plus, the seller must sign a legally binding confidentiality contract called the Non-Disclosure Agreement with the buyer to ensure that the proprietary information is safeguarded and will not be divulged to the public. It makes the transaction more transparent and open where both the parties are not concerned about talking upfront about financials, liabilities, leases, innovative ideas, policies and procedures. It restricts the prospective buyer from stealing the data or employees for personal use and competitive advantage. Here are the benefits of signing an NDA detailed for you:

1. Easier to Define Confidential Information

The NDA can be customised to agree on what information needs to be included in the agreement and what can be left out. It details the obligations associated with each party and how the sensitive data can be handled and what are the requirements when the term of the agreement comes to an end. In the case of the breach of the contract, the seller must create a provision to seek a sanction on further disclosure and get financial compensation. In case, there is a violation of the terms of the agreement; the seller needs to prove in the court of law that the agreement was in fact signed by both the parties. Thus it should be clearly created keeping the needs of both the parties in mind.

2.Keeping The Relationships Cordial

After the NDA is signed, both parties are clear about the part of the information which is confidential and the consequences of breaching the NDA. Thus no one makes a move that overrides the terms and conditions of the contract. It helps to save and maintain relationships in the commercial sector as there is a minimal possibility of misunderstanding and disputes. This is vital for managing negotiations in a successful way during mergers and acquisitions for small businesses and franchises.

In fact, it should be a part of the list of things to know before buying a franchise for sale in Australia for a first-time buyer. The agreement must clearly define for what purpose the information can be used by the prospective buyer so that they can work together without any confusion and distrust.

3. Quick Resolution In Case of Dispute

The noteworthy aspect of signing an NDA is that in case there is a dispute between the two parties related to disclosure, the court can easily give the verdict. It becomes possible because the confidential items are clearly described in the NDA. The seller can include as many elements as he/she desires such as passwords, innovative ideas, selling strategies and more. It saves you a lot of time when the dispute goes to the court. You can take advice from the lawyer in drafting the agreement.

While some sellers wish to create an exhaustive list, others go for a broader statement which deems all information classified which is discussed during the sales procedure. The lawyer can include exceptions to the data which is already in the public domain and other information received from any third party which has not signed an NDA with the seller.

4. Access to Influential Resources

There are times when prospective buyers may try to contact the employees of the company without informing the owner. The employee may inadvertently convey vital details of the enterprise and the NDA may not prove to be useful in such situations. However, the seller has the option of adding the clause of restriction on contacting employees. The lawyer can make specific exemptions where the prospective buyer can get in touch with the human resource through contacts appointed by the seller.

5. Keeping Your Intellectual Property Safe

An NDA comes handy when you have invented a new technology and wish to get it patented. The only way a piece of technology can be patented is if it is not already in the public domain. So when you sign an NDA, you can be sure that it will not be revealed to any third party. Similarly, other trademarks and intellectual property can be aptly protected through the clauses on IP drafted by an attorney in the agreement.

Also, the lawyer can insert a ‘lock-out’ clause which agrees on limiting the negotiation time. This helps in putting pressure on the buyer to complete the due-diligence early and complete the transaction without delay.

Endnote

The NDA is more valuable than just a piece of paper if it includes the right information with defined protections. If the information is leaked once, it is lost forever. It is not possible to get it back. Thus if you are among those who have put their businesses for sale in Australia, then it is time to get the NDA drafted with the help of a seasoned lawyer.

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Gemma Davis