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Maintaining confidentiality during a business sale

On Behalf of | Jun 3, 2021 | Business Law |

A business owner selling his or her company may not understand the importance of confidentiality or may underestimate it. This can be to his or her severe detriment.

There are multiple reasons to maintain confidentiality during a sale. As Chron.com points out, rumors of a change in management can prompt top talent to seek employment elsewhere. The remaining employees may worry about the business’ continuation. Either way, prospects for a profitable sale may suffer as a result.

There are several ways that business owners can maintain confidentiality during negotiations over the company’s sale.

Nondisclosure agreement

According to Inc., a nondisclosure agreement is a contract that all interested parties in the sale must sign. An NDA clearly states that interested parties may not publicize news of the sale nor reproduce any secret information that they may gain access to during the negotiations. A standard NDA that is specific and detailed without any extraneous provisions is necessary to its enforceability.

Third-party advisor

Hiring a third-party advisor to engage buyers facilitates the negotiations of the sale while keeping the owner’s identity confidential. Examples of advisors who may negotiate with interested parties on the owner’s behalf include merger and acquisition advisers or business brokers.

Even if they had the inclination to do so, interested parties cannot reveal information that they do not know. Therefore, there may be an advantage in using a third-party advisor to protect the owner’s identity over an NDA.

Regardless of which method the business owner chooses, a good rule for maintaining confidentiality is only disclosing news or information about the sale on a need-to-know basis.