Should You Sign an NDA Before Seeing a Business's Financials in Alberta?

You have found an Alberta business you might buy, and the seller or broker says you can see the financial statements once you sign a confidentiality agreement. It is a routine request. Sellers do not want customers, staff or competitors learning that the business is for sale.

Routine does not mean harmless. An NDA is a contract, and some versions go well beyond keeping numbers private. This article explains what these agreements usually cover, what to look for, and when signing is reasonable.

This article covers the law of Alberta.

What a business NDA does

A non-disclosure agreement, also called a confidentiality agreement, is a contract where you promise to keep certain information private and use it only for a stated purpose. In a business sale, that purpose is normally evaluating whether to buy.

The information usually includes financial statements, customer lists, supplier terms, pricing, employee details and the fact that the sale is happening at all. The seller is trusting you with material that could hurt the business if it leaked or if you used it against them.

What to look for before you sign

• Definition of confidential information: is it narrow and specific, or does it cover everything you hear or see, even things that are already public?
• Permitted purpose: it should say you may use the information to evaluate the purchase, and nothing more.
• Who you can share it with: you will likely need your lawyer, accountant, and possibly a lender or partner. Check that the NDA allows this.
• Term: how long do your obligations last? A fixed period is easier to live with than one that never ends.
• Non-solicitation: some NDAs bar you from hiring the seller's employees or approaching its customers. Check how long this lasts and how wide it reaches.
• Return or destruction: what must you do with documents if the deal does not proceed?
• Remedies: does the agreement set out what happens if you breach it, such as an injunction or damages?

If a clause is broader than the situation calls for, you can ask for it to be narrowed. Sellers often agree to reasonable changes, particularly when you explain why you need them.

When signing is reasonable, and when to pause

An NDA is not a promise to buy, and it should not bind you to negotiate. If the document also contains exclusivity, a price commitment or a deposit, it is doing more than confidentiality and deserves a closer read.

What you can check without the numbers

Some background does not depend on the seller sharing anything. Alberta Corporate Registry searches are requested through a registry agent, and the options include a certified current search, a certified historical search and a certificate of status. Current and historical searches can show the registration date, owners, directors and legal addresses.

A Personal Property Registry search can be requested on a Search Request form at any registry agent office in Alberta, including by business debtor name. These searches can help you decide whether the business is worth the effort of signing and negotiating. Before you rely on any of this, read the NDA to confirm it does not restrict how you use information from other sources.

What to do next

• Read the whole NDA, not just the first page.
• Mark any non-solicit, exclusivity or non-compete wording.
• Ask for a defined term and a clear list of who you may share information with.
• Ask a lawyer to review it before signing if the wording is unusual.
• Keep a record of what the seller gives you and when.
• Do not sign under time pressure; a genuine seller can wait a day for a review.

Frequently asked questions