Non-Disclosure Agreements for Business Buyers in Ontario

You have found a business you might buy, and the seller will not show you the financial statements, customer list or contracts until you sign a non-disclosure agreement. That is normal. Sellers worry about their staff, customers and competitors finding out that the business is for sale, and about sensitive information leaking.

For you as the buyer, an NDA is also a contract with consequences. This article explains what it generally restricts, how privacy law fits in and which terms are worth negotiating before you receive anything.

What an NDA does in a business sale

An NDA, also called a confidentiality agreement, is a contract in which you promise to keep the seller's information confidential and to use it only to evaluate the purchase. Typically it covers the financial records, customer and supplier details, contracts, employee information and the fact that the business is for sale at all.

Many NDAs are signed before a letter of intent, so they are one of the first documents in a deal. Because you may be handed a lot of sensitive information, the seller often wants the NDA to be firm. Your goal is to make sure it is firm but fair, and that you can actually comply with it.

Why privacy law matters

A business's records often include personal information about customers and employees. Under PIPEDA s. 7.2(1), the parties to a prospective business transaction may use and disclose personal information without consent if they have an agreement requiring the recipient to use it solely for purposes related to the transaction, protect it with appropriate safeguards, and return or destroy it if the deal does not proceed. The information must also be necessary to decide whether to proceed and, if so, to complete the deal. This is why NDAs usually contain these terms.

If the deal closes, the information must be needed to carry on the business, and one party must notify the individuals within a reasonable time after completion. Each organization must also comply with the agreement's terms. The rule does not cover deals whose main purpose or result is buying, selling or leasing personal information itself.

In practice, a seller who wants to share personal information without getting consent will usually want the NDA to include proper privacy terms, and you may be expected to follow them. Ask what personal information you will really need to see at each stage. Sometimes summary or anonymized data is enough early on.

Terms to negotiate

Return-or-destroy and safeguard terms are not just a seller preference. They track what privacy law expects when personal information is shared in a prospective deal. Expect them, and make sure you can honour them.

Watch for restrictions that go beyond secrecy

Some NDAs quietly include a promise not to compete, not to hire the seller's staff or not to approach customers. These are separate commitments with their own risks. Employers are prohibited by the Employment Standards Act, 2000 from entering into employment contracts or other agreements that contain a non-compete, but whether that rule applies to a document between a prospective buyer and a seller depends on the relationship and the facts. A lawyer can tell you.

• A non-compete or non-solicit hidden in the NDA, with no time limit or geographic limit.
• A definition of confidential information that includes anything you learn from any source.
• A requirement that you never discuss the deal with your own lawyer, accountant or lender.
• A promise that you will not make an offer or deal with landlords, suppliers or staff without the seller's permission, if it is wider than you can accept.
• Personal information shared without any privacy safeguards, which is worth raising with a lawyer given the privacy rule.

What to do before you sign

Slow down for a moment, even if the seller is pressing. Once you have signed and received information, the duties apply whether or not you go ahead with the purchase.

• Read the whole NDA and highlight anything that goes beyond keeping information confidential.
• List the people who will need to see the information, such as your lawyer, accountant, lender and business partner, and confirm they are allowed to.
• Ask for the privacy terms to be written clearly, including safeguards and return or destruction if the deal does not proceed.
• Confirm how long the duties last and what happens to copies when the deal ends.
• Set up a simple system for storing and tracking the seller's documents so that you can comply.
• Have a lawyer review the NDA before you sign it, especially if it is the seller's own template.

Frequently asked questions