A non-disclosure agreement, also called a non-disclosure agreement (NDA), is a legal document used in business acquisitions to protect the confidentiality of the information being exchanged.
It is a contract between the buyer and seller that sets forth agreements regarding the use and disclosure of confidential information.
A non-disclosure agreement states that the prospective buyer may use the information provided by the seller only for the agreed purpose: to assess whether an acquisition is feasible for him. Generally, a non-disclosure agreement does not yet specify exclusivity: a seller is therefore free to talk to other prospective buyers as well.
Contents of a non-disclosure agreement
A good non-disclosure agreement contains the following components:
- The information provided is kept confidential and is kept strictly secret from third parties;
- The confidentiality agreement applies to the buyer and its advisers or other persons engaged;
- The vendor is indemnified if it is found that the information is not being used legitimately;
- The potential buyer may not employ employees of the seller;
- The potential buyer may not misuse, for example, a customer list or product specification;
- The non-disclosure agreement does not apply to public information;
- Include a carefully defined fine, link to this the right to claim full compensation.
Penalty for breach of confidentiality
When a party violates the non-disclosure agreement, it is a breach of contract. Such a violation is subject to a penalty as set forth in the confidentiality agreement. The penalty clause applies to any violation, but increasing amounts up to €10,000 per violation is absolutely no exception.
A non-disclosure agreement is not foolproof; it is primarily a gentlemen's agreement. While there are penalty clauses in the declaration, it is virtually impossible to prove that either party leaked from the documents obtained. But it is the best way to protect yourself as a seller from nasty conflicts. Think of it more as coercive than as a crowbar, because most potential buyers are in good faith.
