Why Am I Being Asked to Sign An NDA?

If you’re interested in buying a business, then it is likely that you will be asked to sign a non-disclosure agreement (NDA) at some point. Buying a business requires access to as much information about it as possible, which often includes receiving sensitive information around things like financials, processes, and staff. Non-disclosure agreements protect both you as the business buyer, by ensuring you can receive this information, and the business seller, by ensuring that their business information isn’t shared with third parties. If you’ve ever wanted to learn more about NDAs, and why you’re being asked to sign one, then read on!

What Is A Non-Disclosure Agreement (NDA)?

A non-disclosure agreement (or a confidentiality agreement) is a legal contract that prevents the sharing of confidential information. Businesses will often use them in the buying and selling process to ensure that interested parties receive the information that is needed, without it being shared with competitors.

More generally, NDAs can be used for a number of purposes. If someone’s had a great idea, invented something they want to keep secret, or they have intellectual property they want to share, but don’t want stolen, then an NDA can help protect them and their business. 

There are a couple of types of NDAs:

Unilateral NDAs, where the disclosing party has confidential information that they’re sharing with the receiving party, and they’re looking to keep it secret. 

Mutual/bilateral NDAs, where both parties agree to keep the confidential information they have secret.

Businesses often use non-disclosure clauses as a restraint clause in employee agreements, which prevent employees from sharing information. According to an Australian Bureau of Statistics survey conducted in 2023, 45.3% of Australian businesses used a non-disclosure clause — showing that they are common in the business world.

How Does Signing An NDA Protect Both The Business Buyer And Seller?

Signing an NDA is extremely beneficial for you as the potential business buyer. As the receiving party, the NDA ensures you understand the privileged nature of the business information that’s shared. During a business transaction, this is likely to include information like stock lists, financial information, and organisational structures). 

Once you’ve signed an NDA, you must ensure that you don’t share the information with outside parties. Of course, this also means that the business information you’re receiving isn’t shared with everyone — so you’re in a better position to make an informed choice about whether you want to go ahead with the purchase of the business you’re looking at buying. Signing an NDA also ensures that the business that you’re looking to purchase doesn’t share any of your information — which is especially beneficial if you’re looking at multiple businesses as once, as this could otherwise give away your bargaining power.

As a business, NDAs are crucial to ensuring that competitive advantage is maintained long-term. Trade secrets like the Coca-Cola recipe and KFC’s 11 secret herbs and spices have become mythologised, but if other businesses were to get their hands on those companies’ recipes, it could seriously harm their future performance as a company. Many businesses will have their own secret sauce, and an NDA ensures that you as the potential buyer can see what’s going on “under the hood”, but you can’t run and tell anyone and everyone about it. Without an NDA, these businesses might need to keep this information from you during the buying process, in case the sale falls through — so you wouldn’t have all the information needed to be truly informed. 

How Does Eden Exchange Use Non-Disclosure Agreements During Business Transactions? 

NDAs are just one way that Eden Exchange protects confidential information. On our platform,  DealXchange, we take security seriously. Our DealXchange platform is set up to ensure that all communications between buyers and sellers are safe and secure. We also offer personalised NDAs within our subscriptions to ensure that confidential information stays safe throughout the business transaction. You can view an example of an Eden Exchange NDA here. Once you’ve signed an NDA, your information is passed onto the vendor, who will then arrange a time to get in touch. 

What Should I Look For When Signing An NDA?

When signing an NDA, it’s crucial that you understand its implications. Understanding the scope of the NDA (what information it applies to), and how long the NDA applies for, can help you avoid accidentally breaching it in the future. In our NDAs, we define confidential information as “proprietary and trade secret information (hereinafter "Confidential Information") of the disclosing party provided hereunder, is all information, past, current and future, verbal or written, that is disclosed to the other party and marked with the legend "Confidential" or described as confidential prior to disclosure,” with a separate clause included in the NDAs for exemptions. Our NDAs also clearly state that they apply for three years from the date of signature. 

Final Thoughts On NDAs

When you sign an NDA during the business buying and selling process, it’s a signal to the other party that you’re serious about making a purchase. It’s always worth considering why you’ve been asked to sign an NDA — but businesses asking you to sign one are just trying to protect themselves from malicious actors, whoever they might be. If you’re looking to buy a business today, then browse our list of businesses, confident that you now know why you might be asked to sign an NDA!

Who Is Eden Exchange?

Eden Exchange is an integrated multi-channel platform, simplifying business buying and selling. We match, refer and connect business buyers, sellers & brokers in an ecosystem that facilitates frictionless franchise, business and finance transactions. Visit www.EdenExchange.com and connect with our engaged and multidimensional transaction network today.