Disclosure: Overview, definition and example
What is disclosure?
Disclosure is the act of sharing or revealing information that is relevant to a contract, agreement, or legal obligation. In a business or legal context, disclosure ensures that all necessary facts are made available to the other party, allowing them to make informed decisions. This information is often critical to the deal, covering things like financial details, risks, liabilities, or material facts that could impact the agreement.
Disclosures are a cornerstone of transparency and trust in legal and business relationships. They ensure that one party isn’t hiding critical information that could affect the other’s rights or responsibilities.
Why is disclosure important?
Disclosure is essential because it creates fairness and transparency between the parties involved. When one side fails to disclose key information, it can lead to disputes, financial losses, or even the invalidation of the contract.
For example, in a business sale, the seller must disclose any debts, pending lawsuits, or other issues that might affect the value of the business. If they withhold this information, the buyer could claim a breach of the agreement later.
In many cases, disclosure isn’t just a courtesy—it’s a legal requirement. For instance, in real estate transactions, sellers are often legally required to disclose issues like structural damage or zoning restrictions. Failing to meet these responsibilities can lead to serious legal consequences.
Understanding disclosure through an example
Imagine a company is negotiating a partnership with a supplier. Before signing the agreement, the supplier discloses that they are currently undergoing a restructuring process, which might temporarily affect their delivery timelines. By providing this information upfront, the supplier allows the company to assess the risks and decide whether to proceed with the agreement. Without this disclosure, the company might have entered the deal unaware of potential disruptions, leading to disputes later.
Another example involves mergers and acquisitions. If a company looking to acquire another business discovers undisclosed debts or pending lawsuits after the deal is finalized, this could lead to legal action or renegotiation of the terms.
An example of a disclosure clause
Here’s how a disclosure clause might appear in a contract:
“Each party represents and warrants that it has fully disclosed all material facts, liabilities, and risks relevant to this Agreement. Failure to disclose such information shall constitute a breach of this Agreement, entitling the non-breaching party to remedies as provided herein.”
Conclusion
Disclosure is a critical aspect of contracts and business dealings, ensuring that all relevant information is shared and understood before an agreement is finalized. It protects both parties by creating transparency and reducing the risk of disputes or surprises later on.
By understanding disclosure requirements and making them clear in your contracts, you can build trust, protect your interests, and ensure smoother transactions. It’s a simple but powerful way to maintain fairness and accountability in any deal.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.