Using Confidentiality Agreements to Protect Sensitive Information When Negotiating the Sale of a Michigan Business

It is the dream of practically every entrepreneur: build up their business and sell it for big bucks. In order to sell a business, the business owner has to talk with potential (or actual) suitors, negotiate the deal, and exchange certain information so that the parties can know whether the proposed sale is right for them.

Unfortunately, it is not uncommon for parties to go through these steps and decide for whatever reason not to pursue the deal, only for the seller to find out some time later that the former potential buyer is using the seller’s confidential information shared during negotiations to unfairly compete against the seller. Fortunately, there is a way to legally protect the private and confidential business information of an entrepreneur who is contemplating selling their business.

The way to do that is to use a properly drafted confidentiality agreement. Before the parties finalize the sale of a business, the buyer will normally do an in depth investigation of the seller’s company. This investigation usually includes such subjects as customers, company finances, prospects for future business opportunities and sales, intellectual property, trade secrets, and other sensitive information. A well represented buyer will insist on being able to undertake this type of due diligence so that it can know whether the transaction is likely to work.

It is advisable (and completely accepted) in these types of transactions for the party requesting sensitive and confidential information to provide a signed confidentiality agreement to protect the party who provides the information. Generally speaking, a properly prepared confidentiality agreement will include a number of important provisions, with perhaps the most important one being an acknowledgment by the buyer that the seller will be entitled to injunctive relief if the confidential information is improperly used or disclosed.

The seller should ensure that the confidentiality agreement sufficiently details the nature and scope of the protected confidential information to ensure maximum protection for the seller. Finally, the seller should be very careful to make sure that the confidentiality agreement is not too onerous or unreasonably restrictive or the buyer could be discouraged from pursuing what might otherwise be a mutually beneficial deal.

Please feel free to contact Michigan business attorney Michael J. Hamblin for more information on how he can help you with your legal needs.