As a general rule, when a businessman wants to sell his business, he does not want third parties - bankers, clients, suppliers and employees - to find out about his intentions. Therefore, when a potential buyer (prospect) asks a business broker for information about a company for sale, the broker will have him or her sign a “nondisclosure agreement” before providing any sensitive information.
By signing the confidentiality agreement, the seller of the business must receive from the prospect the discretion and respect that guarantees that the confidential information received during the process is kept secret. As a legal instrument, the agreement has binding effects and, in case of contravention, it can be brought before the courts of law to demand compensation for damages.
The confidentiality agreement used by Florida business brokers (BBF) stipulates the prospect's obligations in relation to the information they are about to receive from the seller, as well as their relationship with the broker intermediating the transaction. In summary, the most important aspects covered by the agreement are the following:
- Identification of the prospect. When it comes to confidentiality, the prospect is not only the buyer, but also the people he trusts who, for reasons of business practice, must know the details of the operation. These include employees, advisors, agents and representatives of the prospect.
- Protected rights. Confidentiality encompasses the protection of certain proprietary information of the seller relating to the seller's operations, properties, personnel, finances and other matters that are not public and are considered proprietary and confidential by their nature. The prospect, by signing the confidentiality agreement, undertakes not only not to disclose the sensitive information received to third parties, but also not to use it for his or her own benefit.
- Unilateral agreement. The standard Florida business broker contract is a commitment signed only by the prospect to guarantee the seller the fulfillment of various promises related to confidentiality. The Seller does not sign the Agreement.
- Broker signature. The business broker could also sign the contract to evidence its agreement with the terms set out in the prospectus, as well as to attest that its remuneration will be covered by the seller.
The broker is the person who links the seller with the prospect and who coordinates the negotiations of both throughout the buying and selling process. Therefore, in addition to the legal effects of protecting the seller's confidentiality from third parties, the agreement brings the following favorable consequences for the business broker:
- The broker's right of exclusivity is established against the prospectus, with respect to the business presented.
- Due to its key function, the broker is entitled to the eventual payment of a commission on the sale price by the seller and this is stipulated in the agreement.
- You receive in the confidentiality contract the guarantees that, for two years from the date of presentation of the prospectus, your eventual commission will be guaranteed.
The signing of the agreement is the first step of the induction process through which the broker will take the prospect before converting them into a buyer. That is when the broker will gauge the buyer's willingness to adhere to the generally accepted standards in Florida in business buying and selling processes, or if, on the contrary, he is a complicated and difficult person to deal with.
It is crucial that the broker evaluates the magnitude of the seller's desire for confidentiality and manages to capture the relevant minimum level of protection in the agreement. Lengthy confidentiality agreements loaded with excessive legal clauses are generally a disincentive for potential buyers.
There are some extreme cases in which the seller has expressed to his staff the desire to sell his business and others in which there is no information to protect. On those occasions, it is obvious that “wasting time” on sophisticated confidentiality agreements is not justified.
Although “there is no secret that time does not reveal,” as the poet Racine pointed out, the confidentiality agreement is of capital importance because it protects the owner of the information and his broker for the time necessary to not put the business at risk.
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Alfredo González ( Alfred@negociosenflorida.com)
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