The tension at the heart of a sale.
Selling a business means handing a prospective buyer information you would normally guard, and doing it while keeping the sale confidential from employees, customers and suppliers, because the mere fact a business is for sale can unsettle all three. The tools run from light to firm, and the seller is usually best placed to judge how firm is needed.
From a confidentiality agreement to firmer options.
At the lighter end is a confidentiality agreement, often called a non-disclosure agreement, which lets the buyer see the records on the basis that they stay confidential and are used only to assess the purchase. It protects the information if the deal does not proceed, without binding either side to go ahead. Where a seller wants more comfort before opening the books, the structure firms up. A call option gives the buyer a limited window to investigate and then decide, sometimes for a non-refundable fee, and can carry confidentiality commitments and restraints, such as not soliciting staff and customers if the option is not exercised. A conditional contract binds both sides but gives the buyer a defined window to terminate. At the firm end, an unconditional contract in which the seller warrants the accuracy of the information commits both parties outright.
Due diligence is the point of greatest exposure.
The exposure is greatest during due diligence, when the buyer learns the financial performance, the operating procedures and the customer details, so the confidentiality agreement is what stops that information being used for anything but the purchase. A buyer may also seek a period of exclusivity so the cost of their investigation is not wasted if the business sells to someone else. We prepare the confidentiality and pre-contract documents through our business sale and purchase service, and draft standalone confidentiality and restraint agreements where they are needed.
The deepest exposure is during due diligence, not before it. By then the buyer knows your numbers, your methods and your customers, so the agreement that governs that disclosure is the one that matters most.
Law referenced: Australian Consumer Law in passing.