So, you're putting your company up for sale. You or an
advisor that you've retained are inviting potential buyers to
have a look. Before you open the books or provide company contracts
and records for review, you need to have each potential buyer sign
a Confidentiality Agreement with your company and its principal
shareholders under which the buyer will agree to keep all
information disclosed to it about your company confidential in the
event that no transaction is ultimately entered into.
The Confidentiality Agreement will cover all confidential and
proprietary assets that your company has, including all customer
and supplier lists and information, pricing and costing
information, contracts, labour and employment agreements,
intellectual property information such as product formulae and
processes, trade secrets, patents, trademarks and copyrights and
all financial statements and other financial information. It should
cover these items both for the company itself and for any
subsidiaries that it has. The fact that any discussions or
negotiations are even taking place with respect to a potential
transaction is also usually something that the buyer agrees not to
disclose (unless you have made public that a sale process is
The agreement needs to provide that the buyer may only disclose
your information to any of its representatives and advisors who are
assisting it in connection with the proposed transaction and that
the buyer will ensure that all such representatives and advisors
will also keep the information confidential.
There are some common exceptions to the confidentiality
obligation which the agreement should provide for such as
information which becomes generally available to the public other
than as a result of disclosure by the buyer or its representatives,
information which a buyer is ordered to disclose by court order and
some other exceptions in certain situations.
The agreement should provide that the buyer will indemnify you
against any damages resulting from any breach of the agreement and
that the buyer agrees that you are entitled to obtain an injunction
against any potential or further breach.
Frequently the agreement will
provide that all contacts and communications by the buyer regarding
the company and its business and assets must be directed through a
specified person or advisor on your side to ensure that the release
of information is controlled as you consider
The agreement will also contain various standard legal terms
such as the right of the company to terminate discussions at any
time and that the company will have no liability as regards the use
by the buyer of the information disclosed.
If the company is dealing with a competitor as the potential
buyer, you may also want to include a provision that if the
transaction does not proceed, the buyer will not solicit or, even
better, will not employ any employees of the company for a set
period of time after negotiations end. This will protect the
company against poaching of employees who the buyer became familiar
with through the sale process.
One overall caution about
Confidentiality Agreements as with many other important agreements
- they are necessary to have in place but you don't want to
have to actually sue for breach of one. It may be impossible to put
the toothpaste back in the tube if one of your competitors takes
your confidential information and uses it improperly. As a result,
you should also be cautious about the extent of confidential
information disclosed to a potential buyer during the negotiation
process until you are sure that it is serious about proceeding with
a transaction - you may want to ensure that information is
disclosed in stages, dependent on the commercial sensitivity of the
information, even where an appropriate agreement is in
Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
While most are well aware that the sale of a business is generally a complex process, even sophisticated business owners are surprised by just how much cost and effort is required to complete the sale.
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