The Confidentiality Clause in an Ontario Business Sale LOI: What It Actually Covers

By the time a letter of intent is on the table, a seller has usually already shared meaningful detail about the business — financials, customer relationships, staffing, sometimes trade secrets. The confidentiality clause tucked into the LOI is what's supposed to keep that information from ending up somewhere it shouldn't. But "confidentiality clause" can mean different things depending on how it's drafted, and it's easy to assume more protection than the actual wording provides.

What the Clause Typically Protects

A confidentiality clause in an Ontario business-sale LOI generally restricts the receiving party (usually the buyer, though it can run both ways) from:

• Disclosing information shared during negotiations to third parties.
• Using that information for any purpose other than evaluating and completing the proposed transaction.
• Disclosing the existence of the negotiations themselves — sometimes covered separately, sometimes bundled into the same clause.

What counts as "information shared during negotiations" is usually defined broadly to include financial statements, customer and supplier lists, employee information, pricing, and any other material provided for due diligence purposes — but the exact scope depends entirely on how the specific clause defines it.

What It Typically Does Not Cover

Confidentiality clauses in LOIs are rarely absolute. Common carve-outs include:

• Information that was already publicly available or independently known to the receiving party before disclosure.
• Information the receiving party is legally required to disclose (for example, in response to a regulatory or court order).
• Disclosure to the receiving party's own advisors (lawyers, accountants) on a need-to-know basis, usually subject to those advisors also keeping it confidential.

If a clause doesn't spell these out, that itself is worth flagging — a badly drafted confidentiality clause with no defined scope or carve-outs can be harder to enforce cleanly than a precise one.

LOI Confidentiality Clause vs. a Standalone NDA

Many Ontario business-sale negotiations actually use both: a standalone non-disclosure agreement (NDA) signed before substantive information is exchanged, and then a confidentiality clause inside the LOI itself once negotiations have progressed further.

If both exist, check how they interact — a well-drafted LOI confidentiality clause should say explicitly whether it replaces, supplements, or sits alongside any earlier NDA, so the parties aren't left guessing which document controls.

How Long Does Confidentiality Last?

Duration is a negotiated term, not something fixed by law — there's no default or standard period for how long confidentiality must be maintained after a deal falls through or closes. Some clauses specify a fixed period; others tie the obligation to information remaining genuinely confidential, with no fixed end date. Because the length matters as much as the existence of the clause itself, this should be spelled out explicitly rather than left implied.

Practical Steps for Protecting Information

1. Don't share sensitive information before something is signed — a verbal assurance of confidentiality is far weaker than a written clause.
2. Check whether the confidentiality obligation survives if the deal doesn't close. This is one of the most commonly overlooked gaps — a clause that only discusses confidentiality "during the transaction" may not clearly protect the seller if the deal collapses.
3. Identify who else may see the information. If the buyer has partners, lenders, or co-investors who'll need access, address that in the clause upfront rather than after the fact.
4. Keep a record of what was actually disclosed and when. If a dispute arises later about what information a confidentiality clause was meant to cover, contemporaneous records matter.

Frequently asked questions