How Can a Non-Disclosure Agreement Protect My Business During an Acquisition or Business Merger?

non-disclosure, DuPage County mergers and acquisitions lawyersIf you are a business owner, you have probably poured a great deal of your time and money into growing your business. If you are considering a business merger or acquisition, it is essential that you take steps to protect your business. During a business transaction, confidential and proprietary information is often discussed. You may even share trade secrets or access to confidential software or computer files. In situations such as these, a non-disclosure agreement may be needed to ensure that the company given access to valuable information does not use it to your detriment.   

Acquisitions and Mergers

The terms “merger” and “acquisition” are often misunderstood. Many people assume that these words mean the same thing, but there are important differences between these two processes. When one company purchases another company, this is referred to as an acquisition. The company that was purchased no longer exists.

A strategic remix acquisition involves the buyer purchasing a business and then integrating the operations and product line into its own business. A private equity acquisition involves the purchase of a company which is improved and then sold at a higher cost for profit. An alphabet acquisition is an agreement between the two companies that contains elements of a strategic remix acquisition and private equity acquisition.

When two companies join together to form one new company, this is called a merger. In 2017, Dow Chemical and DuPont merged into the company DowDuPont. This $130 billion merger was one of the largest mergers to occur in the last several decades.

A Non-Disclosure Agreement Can Protect Your Interests

In a business transaction such as a merger or acquisition, confidential information such manufacturing processes, formulas, designs, patent applications, business strategies, proprietary information, and vendor and customer lists may need to be shared with the other party. In order to ensure that this information is not used to the disclosing party’s disadvantage, many mergers and acquisitions involve non-disclosure agreements. Also called confidentiality agreements or NDAs, non-disclosure agreements identify what information is confidential and may not be shared with other third parties.

An NDA may also contain provisions requiring the recipient party to destroy or return confidential information at the request of the disclosing party. If the recipient party breaches a non-disclosure agreement, such as by using the confidential information to start a business very similar to the disclosing business, the disclosing business has the right to seek monetary damages.

Contact a DuPage County Business Law Attorney

For help with drafting a non-disclosure agreement, buying or selling an existing business, and more, contact Stock, Carlson & Duff LLC. Call 630-665-2500 today to schedule a consultation with an experienced Wheaton business lawyer to discuss your needs.



What Small Business Owners Need to Know About Non-Disclosure Agreements

DuPage County contract attorneysOne of the most important parts of owning a business is forming beneficial relationships with other entrepreneurs and businesses. In an ideal world, these relationships could be casual, but handshake agreements are not always honored. Informal business agreements can quickly go south and result in damage to your business’s bottom line. Business agreements involving another party should be formalized in writing. One such agreement is a non-disclosure agreement, or NDA. Non-disclosure agreements are often essential to protecting a company’s professional interests and continued success.

How Does a Non-Disclosure Agreement Work?

Non-disclosure agreements are a type of confidentiality agreement used to prevent sensitive company information from being shared with other parties. An NDA is a legally binding document which can be used in a variety of situations, most often during proposed or pending business transactions. A company may choose to use an NDA during the sale or purchase of a business, a merger, or during any other conversation in which privileged information is being shared. When discussing a possible merger, for example, the other party will learn information about your business which you may not want shared with anyone else. Allowing news of the merger to reach other businesses or even the press may not be in your best interest. In this example, an NDA can be used to ensure that the other party does not divulge company information to others.

The Two Main Types of Non-Disclosure Agreements

The most common types of non-disclosure agreement are one-way agreements and mutual agreements. A one-way NDA is also called a unilateral NDA. As the name implies, one-way NDAs only bind one of the parties to confidentiality. A unilateral NDA may be useful in preventing potential investors from revealing your business’s information to other people or companies. If you use a one-way NDA in this scenario, you do not have a reciprocating requirement to keep the potential investors’ information confidential. A mutual NDA, on the other hand, applies confidentiality requirements to both parties in a business transaction. A mutual NDA should be used when dissemination of either party’s information could adversely impact the business or the industry. Companies discussing the possibility of a merger most often use a mutual NDA.

Contact a DuPage County, Illinois Business Law Attorney

The Wheaton business lawyers at Stock, Carlson & Duff LLC, have experience helping clients create formal contracts like non-disclosure agreements and offer many other business law services as well. Schedule a consultation with our law firm by calling 630-665-2500 today.