When a business owner starts talking with potential buyers about selling a business, the first question is about confidentiality. They often want to know if they should use a Nondisclosure Agreement (NDA).
An NDA isn't always required. Some sellers share limited, high-level information without one. However, in most transactions, it's an important safeguard. Selling a business involves revealing details about operations, financials, customer relationships, and pricing that aren't meant for public view. Without protection, those disclosures can create real risks.
That's why many deals in New Jersey and New York begin with an NDA. The NDA is used to control when and how sensitive information is shared. It also ensures the information is used only for evaluating the potential sale.
What an NDA Does
A nondisclosure agreement establishes the rules. It details what a potential buyer can and cannot do with the information they receive during early discussions. It typically covers:
- Financial statements and tax returns
- Customer and vendor lists
- Pricing models and internal processes
- Any proprietary or confidential information about the business
The goal isn't to make life difficult for the buyer. It's to protect the business's value. This protection is necessary while serious negotiations are still developing.
How Much Information Should Be Shared?
In most cases, sellers require an executed NDA. They may also request a deposit. This deposit is paid along with a letter of intent (LOI) before sharing detailed information about the business. This stops "free look" situations. These are cases where a buyer requests deep access to operations or financials with no real intent to purchase.
Still, there are exceptions. In some industries or early conversations, sellers may choose to provide limited high-level information. This includes general revenue ranges or business type. They do this before an NDA is signed. The key is to control the depth of disclosure until the buyer has shown genuine commitment.
Protecting Against Bad-Faith Buyers
Unfortunately, not every inquiry comes from a good-faith buyer. Competitors sometimes pose as acquirers to gather intelligence, and casual investors may request access just to "see how things work."
An NDA deters this behavior by creating legal consequences for misuse. More importantly, it signals that the seller is organized and serious — qualities that attract credible buyers and discourage opportunists.
Finding the Right Balance
A strong NDA should protect confidentiality without being overly broad. Agreements that seem one-sided or excessive can turn away legitimate buyers. Sellers should ensure the NDA clearly defines:
- What counts as confidential information
- How long the confidentiality obligation lasts
- The permitted uses of the information
- What happens if the deal doesn't move forward
Getting that balance right helps keep deals moving while maintaining protection.
The Takeaway
Whether you're selling a business or buying a business, confidentiality is essential. An NDA protects both sides. It sets clear boundaries around what information can be shared. It also defines how this information can be used.
For sellers, it prevents competitors or casual buyers from getting a free look behind the curtain. For buyers, it helps ensure that the information they receive is accurate and disclosed in good faith.
In most New Jersey and New York transactions, the process begins with an NDA. Often, a small deposit or letter of intent is required. This happens before any detailed financial or operational information is shared. That structure builds trust, protects value, and sets the tone for productive negotiations..
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
