As a prospective buyer of a business, confidentiality agreements are crucial to the sales process. These agreements, designed to protect both buyers and sellers, serve multiple purposes. They safeguard sensitive information while also ensuring that buyers can access necessary details about the business to make well-informed decisions. The fundamental purpose of a confidentiality agreement is to protect information under New Zealand law, helping the business maintain its competitive advantage and prevent misuse.
From a legal standpoint, a confidentiality agreement ensures that if any misuse of information occurs that there are legal avenues for the disclosing (seller) party to seek in the case of a breach, including a possibility of injunctive relief to prevent further misuse. This also prevents direct competitors and parties from utilising the disclosed information to gain unfair market competitive advantages. Additionally, it ensures that the transaction and included information comply with relevant New Zealand laws, such as the Privacy Act 2020, which governs the handling of personal information and requires protection against unauthorised access and disclosure. Read more insights and resources for a deeper understanding of these legal aspects.
Removing the worry of the premature or unauthorised disclosure of a transaction is also integral to maintaining business stability, without locking you into any obligations to purchase should you not want to. It prevents miscommunication regarding the transaction that could disrupt or jeopardise business operations and relationships with a business’s existing employees, customers, and suppliers. When purchasing a business, you want to step into your new venture with a stable footing to help make the transition as seamless and successful as possible, a confidentiality agreement facilitates this.
Most importantly, a confidentiality agreement fosters a relationship built on trust and transparency between the seller and buyers. Trust helps create a positive foundation for negotiations, increasing the likelihood and success of a business transaction.
As a buyer, the advantage of a confidentiality agreement is that it allows you to access a business’s sensitive information, which would otherwise not be shared. When looking to buy a business, having insight into and access to the details of its daily operations means you have all the necessary resources to decide whether to purchase the business.
A confidentiality agreement is designed to protect and allow access to sensitive information. When buying a business, signing and agreeing to the terms of a confidentiality agreement equips you with the information needed to understand the true nature of the business. This access allows you to investigate and assess whether the business aligns with your goals.
As a buyer, understanding your obligations within a confidentiality agreement and recognising the benefits it provides—such as negotiating from a place of mutual trust and understanding and accessing sensitive details of the business’s operations—will place you ahead of other buyers. This works to your advantage, giving you an edge over your buying competition for businesses that align with your objectives.
For further reading, you can explore our article on Confidentiality Matters: Protecting Your Business Value in a Sale.
