Why would I pay for your business when you’ve already given it to me? The importance of a well-crafted Confidentiality Agreement in sale negotiations

In the excitement of fielding potential buyers for their business, many business owners often neglect to take the requisite precautions to safeguard their important Intellectual Property (IP), goodwill and trade secrets.

Blinded by the prospect of a windfall, many rush in and disclose the nature of their operations and key drivers of their profitability without thought to the inherent dangers such as, for example, arming and enabling a potential competitor if and when the sale falls through.

Sometimes this situation arises quite innocently. For example, occasionally it is only through the fact finding and due diligence process with the potential buyer that many smaller businesses realise the true value in their operation is not in what they are making or selling but in the way they are making or selling it.

Essential when entering discussions with potential buyers is a well-crafted Confidentiality Agreement which is signed by the potential buyer prior to advancing serious discussions. Among other things, insisting on a Confidentiality Agreement can assist to:

  • avoid the potential buyer using your vital trade secrets, intellectual property and know-how in a competing business if the sale falls through;
  • minimise any damage to goodwill of the business through the revealing of a potential sale to your suppliers, clients and competitors; and
  • restrict the ability of the prospective purchaser to leverage a better price and terms once key business know-how is disclosed.

If you require guidance on the essential steps to safeguard your IP and goodwill when engaging with prospective buyers of your business, contact Rankin Business Lawyers for practical, commercial and on-point advice.

Joseph Carneli, Senior Associate

2018-11-14T06:09:51+00:00November 14th, 2018|Business Advice, Contracts, Corporate Advisory, Intellectual Property|Comments Off on Why would I pay for your business when you’ve already given it to me? The importance of a well-crafted Confidentiality Agreement in sale negotiations