Q: I am the majority shareholder in a software company. Is there anything that I can do to limit my risk?

I am the majority shareholder in a software company. We’ve been approached by a very large competitor who has asked whether we’d be interested in being taken over by them. I’m not averse to this if the price is right, so I’ve appointed one of my directors to oversee the negotiations. Our head office is in Joburg but I recently moved to Cape Town which is why I can’t be as involved in the discussions as I’d like to be. I am a little hesitant though, because it involves giving our director a lot more information about the company than he would ordinarily receive. I’m also worried about the extent of our confidential company information that we need to give to our competitor – and there’s no guarantee that the sale will even go through. Is there anything that I can do to limit my risk?

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A:

You have very valid concerns on both counts. Aside from limiting the release of information to only the information that absolutely has to be disclosed (and clearly marking it as being confidential) you should ensure that you get secrecy agreements signed before you start any form of negotiation.

With regards to your director, you could consider getting him to sign a Secrecy Undertaking as well as a Restraint of Trade (if he hasn’t already done so). By signing these documents, he would be acknowledging your company’s rights in your intellectual property, agreeing not to use the information other than in a company-authorised manner, and also undertaking not to join a competitor.

From the perspective of your competitor, you should consider getting a Non-Disclosure Agreement signed. And possibly also build in a clause that retrains them from employing any of your staff for a defined period of time.

Only once your secrecy agreements are in place should you consider commencing negotiations with your competitor. While these agreements won’t necessarily provide any guarantees that your director and the competitor will act honourably, they will at least provide you with a strong base on which you can launch a legal action to protect your company’s interests, if it should come to that.

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