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Insights

Are you looking to buy or sell a small business? If you are, it is important to consider the often overlooked, but imperative, aspect of the protection of you or your businesses’ private and confidential information.

Small businesses are defined as those businesses with an annual turnover (being income from all sources, and not including assets held, capital gains or proceeds from capital sales) of $3 million or less. If your business falls within this definition, then generally you are not protected by the Privacy Act[1]. Therefore, it is important that checks and balances are put in place so that confidential information cannot be disclosed to others.

Confidential information passes between parties from the very start of the sale of business process, often before contracts are even prepared, let alone signed or the sale completed. In some cases, the prospective buyer may ultimately decide not to proceed with the sale.

As such, while the contract can include a confidentiality clause, to protect you during the due-diligence process, which can include passing on information about the businesses’ financial situation and key contracts, we would recommend you enter into a non-disclosure agreement.

This can be a relatively straightforward two or three page document, which covers key issues such as:

  • Who the information can be disclosed to
  • The purposes they can use the information for
  • How the information will be given
  • How and when the information will be returned.

This document can be tailored to protect you and your specific circumstances, whether you are the buyer or seller of the business. For example, if you are the buyer, as you will be the recipient of the information, we can provide that the confidentiality obligations are only for a certain period of time. On the other hand, as the seller you are sharing your own confidential information, and we generally would seek not to impose any time limit, so the obligation to keep the information confidential remains in place forever (or until it ceases to be confidential information).

If you have any questions about non-disclosure agreements, or any part of the process involved in the sale or purchase of a businesses, please contact our office for further information.

[1] https://www.legislation.gov.au/Details/C2021C00139

 

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