Information is everywhere. We are inundated with information on a daily basis, and in the world of business, information is king. Information drives business decisions, and generally speaking, the more information you have, the more likely your decisions will result in positive outcomes. Therefore, information is valuable, information is a commodity, and information must be properly protected.
For many business, there may come a time when an opportunity presents itself to pursue a new transaction, whether it be through a major purchase or sale, a merger with another entity, or perhaps a partnership that allows both parties to work and grow together. In each of these scenarios, it is critical that you have as much information as possible before deciding to move forward. Naturally, the party on the other side of the proposed transaction is also seeking information from you, and it is imperative that each party simultaneously share its necessary information, while insuring that such valuable information is protected from unwanted disclosure to outside parties. Enter the confidentiality agreement (also commonly referred to as a non-disclosure agreement).
Besides a term sheet or letter of intent, the execution of a confidentiality agreement should be one of the first steps in investigating a potential business transaction with another party. Confidentially agreements are binding contracts that dictate the terms by which the parties agree to share certain information, while setting restrictions on how that information may be used. While the specific terms of a confidentiality agreement may vary from transaction to transaction, most confidentiality agreements will address at least four core issues: (1) the parties disclosing and receiving the information, (2) the definition of what is and isn’t “confidential information,” (3) the rights and obligations of the party receiving the information, and (4) the term of the confidentiality obligations.
Whether you are the disclosing party, the receiving party, or both, confidentiality agreements are vital to your ability to further investigate the prospects of a potential transaction, and you must understand what your rights and obligations are under the agreement. Negotiate and execute confidentiality agreements early on in the process, and don’t let your valuable information go unprotected.
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