Why Are Non-Disclosure Agreements Used When Selling a Business?

This question is one that often comes up during the sale of a business. Prospective buyers have felt that the use of a non-disclosure agreement was questioning their honesty and integrity. Some have asked why we use non-disclosures on businesses for sale but not on real estate.

The facts of the matter are quite straightforward. There is no implication that a buyer is dishonest or not to be trusted. The reasons non-disclosure agreements are used in selling a business are as follows:

1. On a residential property, everyone knows the property is for sale. There is usually a big sign out front stating that the building is for sale.

2. On commercial properties, the buyers are not in the habit of talking to tenants about the building. Even if a prospective buyer told the tenant the building was for sale, it would have no impact on the tenant. The tenant has a lease and is not in anyway threatened.

3. With businesses, it is different. The seller is telling you details about his business and his private finances. He usually doesn't want the employees of his business to know that he is discussing the sale of his business. Sellers also do not want their suppliers, customers or the general public to know that he or she is in negotiations to sell the business.

To ensure privacy, a seller requires that people he or she is disclosing his personal financial details to, keep these matters private. The best way to achieve this is to enter into agreement with a potential buyer that he or she will not disclose the personal details of the seller. Thus, we have the non-disclosure agreement to ensure this.

About the author:
Willard Michlin is a Business Broker, California Real Estate Broker, Accountant, Well known Public speaker and Administrative/Business Consultant. He can be contacted at his Ventura, California office by calling 805-529-9854 or by e-mail at kismetrei@earthlink.net. See other articles by Willard Michlin at http://www.kismetbusinessbrokers.com