The confidentiality agreement or NDA, which stands for Non Disclosure Agreement, is an essential document in a company purchase and sale process, as it provides security and obliges the parties not to share certain sensitive information about the company.
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Deale Academy
July 30, 2024
What is an NDA or confidentiality agreement and why is it important when Iran Mobile Phone Number Data buying and selling a business?
In the business world, Non Disclosure Agreements (NDAs) are standard practice, especially during mergers and acquisitions (M&A) processes. They are an essential document in the purchase and sale of companies that provides a security framework by allowing sensitive information to be shared with confidence and guaranteeing protection for the company from possible damage.
Therefore, it is essential to detail what this type of agreement is and, above all, why it is so important in the purchase and sale of companies.
An NDA is one in which the parties that sign it agree to keep certain information secret due to the sensitivity of this type of operation, since its disclosure could be used fraudulently (privileged information) or by competitors for their benefit.
These agreements are common not only in corporate transactions, but also in hiring staff and agreements with suppliers. The Spanish Patent and Trademark Office (OEPM) makes available to any user a basic NDA model, adaptable to each of the needs or situations that arise in a specific process.
What is included in a confidentiality agreement?
This document must reflect the commitment and obligations agreed upon by the parties when it comes to not revealing certain information to other people or entities. To do so, it must be clearly and in detail established what type of data should not be revealed, as well as the consequences that doing so would have.
In the case of an M&A process, both companies must specify in the agreement what type of data should not be made public during the process and for how many years. They must also specify what penalties could be incurred for non-compliance, which are usually quite high.
In short, what should appear in this NDA are:
Involved parties : those who will share and protect the information.
Subject of the agreement: refers to confidential data.
Duration of the agreement: period of validity of confidentiality.
Penalty: consequences of non-compliance.
Why is an NDA essential in a business purchase and sale process?
When an M&A process begins, there is a lot of critical data shared between the parties. An economic , legal and tax due diligence must be carried out to show a real-time picture of the situation of the company to be acquired or merged at the level of supply chain, manufacturing, employees, customers and suppliers.
In other words, a whole set of information that, if leaked to third parties, can be used to significantly damage the situation of a company in question. Therefore, it is important to establish confidentiality frameworks in which to share certain information with the peace of mind that an investor interested in the company will not reveal it.
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