Should I sign an NDA before the seller tells me the business name?
BDC says it is customary to sign a confidentiality agreement to pursue discussions with a seller, and calls it essential for the buyer to get the information needed to make an offer or withdraw. The choice is yours. Read what it covers, for how long and what it restricts first.
A seller may hold back the business name until a buyer signs. That can feel like signing blind, so it helps to know what the document is for. BDC describes a confidentiality agreement as a document in which a party undertakes not to use, disclose or permit the disclosure of confidential information, except for the purpose of evaluating its participation in the proposed transaction. Whether you sign is your decision. What you can control is what you agree to.
What BDC says about the step
BDC says that to pursue discussions with the seller it is customary to sign a confidentiality agreement and to write a letter of intent. It adds that the confidentiality agreement is essential for the potential buyer to have access to the information needed to formulate a letter of intent, to submit an offer or, if necessary, to withdraw interest. In BDC’s due diligence guidance it also says the agreement is essential for you as a potential buyer.
What to read before you sign
- What counts as confidential information, and whether the business’s name and the fact of the discussions are covered.
- The permitted purpose. BDC’s definition limits use to evaluating participation in the deal, so check that yours does too.
- Who else may see the information, such as your lawyer, accountant, lender or partners, and on what terms.
- How long the duty lasts, and what happens to documents if you withdraw.
- Whether it is mutual. BDC describes it as protecting the information and documents belonging to both parties.
Why it is worth having a lawyer read it
Even a short form is a contract, so check how long each duty in it lasts. BDC also notes that a letter of intent, though not intended to be fully binding, can create binding obligations where it says so, particularly on confidentiality and exclusivity. So read the later documents as carefully as the first. For what the document protects and what happens next on Deavo, see what an NDA actually protects and what happens after you sign an NDA.
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Business Development Bank of CanadaGovernmentLetter of intent and confidentiality agreement for a business acquisition: What clauses should be included?
- 02Business Development Bank of CanadaGovernmentHow to conduct due diligence when buying a business
- 03Business Development Bank of CanadaIndustryHow to sell your business
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