This article is Part 2 of a series of blogs focusing on three pre, business sale documents:
- Part 1: Broker Mandate Letters;
- Part 2: Non, Disclosure Agreements; and
- Part 3: Heads of Agreement.
We have also developed a library of resources that will help clarify your thinking about selling your business and get you started on the right track. Selling your business may not be something you do every day, but we do. Call us now on 1300 654 590 or email us to discuss how ADLV Law can help you realise the value within your business and guide you through the various stages of the sale process.
What Is the Purpose of an NDA?
When you decide to sell your business, as part of the due diligence process, you will disclose valuable information to potential buyers. This process makes your business vulnerable to bad actors who might take that information and use it against you. A properly drafted Non-Disclosure Agreement (NDA) or Confidentiality Agreement, protects the ‘secret sauce’. It does this in three essential ways, it restricts:
- Who gets access to your confidential information. The NDA limits disclosure to the buyer and their authorised representatives (lawyers, accountants, financiers), no one else;
- When they access your confidential information. You need to say enough to attract serious interest, without giving away the store. Remember: you can’t ‘un, disclose’ something. If in doubt, leave it out, or defer to later in the process under tighter disclosure conditions; and
- How they can use that information. Disclosure must be limited strictly to evaluating the potential acquisition, not for competition, future investment activity, or poaching employees.
NDAs should always be signed before a buyer receives your Information Memorandum or any due diligence material. In fact, having a robust NDA in place is part of projecting a professional, process, driven sale environment that encourages genuine buyers and deters tyre kickers.
Who Signs the NDA?
An NDA is a contract binding on the parties to the agreement. You should therefore think about who should be bound by the obligations of confidentiality. It’s not just the corporate entity or fund; the following should also sign:
- Advisers or partners within an investment syndicate;
- Individual buyers acting through SPVs or nominee companies; and
- Current employees (e.g. if they’re part of a buyout or equity roll, up).
Case study: Even though James was an employee of the business and already subject to confidentiality clauses in his employment agreement, he was required to sign a separate NDA when participating in the buyout process, because he was acting in a different capacity and exposed to more sensitive information.
What if a Buyer Refuses to Sign?
Some venture capital firms, and private equity funds have taken to rejecting NDAs on principle, citing broad market exposure or concerns about future investment conflicts. But this excuse doesn’t hold water. A well, drafted NDA protects only the information unique to your business. It does not prevent a fund from investing elsewhere, it simply prohibits them from misusing your proprietary data. If a prospective buyer refuses to sign an NDA, take it as a red flag. If they won’t agree to basic confidentiality terms, imagine how difficult they’ll be when negotiating warranties or completion terms.
How an NDA Helps You Maintain Control
A strategic NDA does more than protect information, it reinforces your control of the process. It:
- Gates access to the Information Memorandum: Only serious buyers willing to engage legally get to see your data.
- Signals professional seriousness: Requiring legal review gets buyers invested.
- Allows for staggered disclosure: You retain the power to drip, feed information and maintain competitive tension.
Some sellers worry an NDA will slow down buyer interest. In reality, it filters out unserious parties and gets the rest to engage properly.
Key Clauses to Get Right
An NDA should be tailored to match your business , definitions matter:
Scope of Confidential Information: The scope of confidential information in an NDA is not one, size, fits, all. It must reflect the specific assets and competitive sensitivities of your business. The goal is to ensure that the true value, driving components of your operation, whether customer data, supplier terms, software code, or pricing formulas, are clearly captured and protected. If the NDA’s definition of ‘Confidential Information’ is too vague or generic, it might not cover critical parts of your business that a competitor or buyer could misuse. On the other hand, if the definition is too narrow, it can create loopholes or disputes over what was protected.
Permitted Use: The Permitted Use clause in the NDA defines how the recipient is allowed to use the confidential information disclosed during a potential transaction. At its core, the clause ensures the buyer is granted access to sensitive data only for the purpose of evaluating whether to proceed with the proposed acquisition, not for any collateral commercial benefit. The clause should also expressly prohibit use, for example, reverse engineering, adaptation, or replication of systems or products.
Duration: The duration clause determines how long the recipient must keep your confidential information private. While the NDA itself may expire or terminate after a certain event (for example, the end of negotiations or signing of a sale contract), the obligation to maintain confidentiality typically extends for a defined period afterward. The duration of the protection offered by an NDA should be long enough to safeguard your position (2-3 years is typical). This covers the full lifecycle of the deal process and post, transaction integration window, reflects the commercial relevance of the data disclosed and allows time for any dispute over misuse to arise and be addressed.
Non-circumvention: A well-drafted non-circumvention clause prevents a prospective buyer from using the information obtained during the sale process to bypass you and directly approach your key clients, suppliers, employees, or other stakeholders. It ensures that your business relationships are not compromised or exploited before a deal is concluded, or if the deal falls through.
Remedies: When a buyer breaches an NDA by misusing or disclosing your confidential information, monetary damages alone may not be an adequate remedy. That is because once sensitive information is released, client lists, pricing strategies, product designs, you can’t undo the harm. You can’t ‘un, ring the bell.’ This is why a strong NDA must include an express right to injunctive relief, a court order stopping the breach immediately.
Group Disclosure: When a prospective buyer signs an NDA, it’s rarely just one person or one entity reviewing your confidential information. In larger organisations or investment groups, that information is often shared across affiliates, related bodies corporate, portfolio companies, and advisers. If not properly limited, this can lead to your information being distributed far beyond what is reasonable, or safe. Without tight language, a buyer could claim the right to share your financials, IP, and client data with other companies they own or fund (including competitors), prospective co, investors or underwriters, international parent companies with different privacy standards and internal departments with no direct role in the deal. Once shared, that information can’t be ‘unshared’, and your ability to enforce confidentiality becomes diluted or uncertain.
Special Considerations for Family Owned Businesses
In a family-owned business, confidentiality isn’t just a commercial matter; it’s often deeply personal.
You may need to protect legacy relationships with clients, suppliers, and employees. Disclosing this information too broadly can damage trust and weaken future negotiating leverage, especially if the deal falls through. NDAs should be structured to ensure such disclosures are tightly controlled, and only shared, when necessary, with traceable access (e.g. via secure data rooms).
Overlapping family roles can create grey areas. Family members often wear multiple hats, owner, employee, board member, and now, possibly, buyer. This overlap can cause confusion about when a person is acting within their role or outside of it. You should ensure that any family member involved in the transaction as a prospective buyer or investor signs a standalone NDA, even if they already have access to information through their employment or board position. The NDA should make clear that the information accessed in the deal context is not to be used for any other role or purpose.
Cultural sensitivity and internal boundaries within the family may be an issue. In multigenerational or culturally traditional families, open disclosure of financials, profit margins, or succession intentions can trigger tension or resistance. Some family members may not even be aware of the full financial picture, especially if they’ve taken a back seat in management. We suggest you hold a family or board level meeting early in the process to agree on what will be disclosed, who will have access, and how decisions around the transaction will be made and documented. This minimises the risk of disputes and ensures all parties remain aligned and protected by the NDA framework
You need to ensure all parties who are involved in evaluating the transaction, formally or informally, are bound to confidentiality. The safest approach is to require every participant to be a signatory or nominated representative under the NDA.
How We Can Help
An NDA isn’t just a protective cloak; it’s a control mechanism. It sets the tone for the entire sale process and ensures you’re dealing with buyers who respect boundaries. At ADLV Law, we help business owners prepare robust NDAs tailored to your sale strategy and risk profile. We work with your broker and accountant to ensure sensitive data is protected, buyer expectations are managed, and your control over the sale is never compromised. Don’t hand over your data without first locking the gate. Let the NDA do its job, so you can focus on getting the deal done, on your terms. Call us on 1300 654 590 or email us to speak with one of our trusted advisers.
The information contained in this post is current at the date of editing – 17 July 2025.
