One of the most often used agreements in business is the non-disclosure agreement, or NDA. Almost any business has confidential information that it wants to keep from competitors. NDAs are an excellent resource for owners to set expectations for employees, potential buyers or anyone who accesses company information. There are three times in every business’s life when the owner should seriously consider using an NDA.
To allow employees to use confidential information on your behalf
The most common use of NDAs is with employees. Most companies ask employees or potential staff to sign an agreement to keep specific aspects of the business and its products and practices private. Usually, an NDA requires an employee not to share any company details even after that employee’s employment ends.
Obtaining an NDA gives an employer a level of comfort in sharing vital company information with its employees. That gives employees the chance to hold relevant information while working – enabling them to perform their jobs more effectively. But employees need to understand that the confidential information is company property, and they can only use it for company purposes.
To protect important details and pricing of a specific product
If your company’s presence grows, you may want to expand services or products to new markets. You may even consider a licensing deal or selling a specific technology to a buyer. There is nothing wrong with growing your company, but you need to protect your inventions, products, or services beforehand.
An NDA protects you so that you can let potential customers or buyers know more about an upcoming product or service, or to understand how your product works. Under an NDA a customer is not allowed to use the information for any purpose other than to consider buying the business’s product. So, among other things, the customer may not use the information to develop its own product or service or to disclose the information to any third party for any purpose, including, potentially to get a better price or product from a competitor.
To protect company information from use by prospective buyers
Company owners often encounter an opportunity to consider an acquisition or sale of a business to potential buyers. However, a buyer may require that you disclose a significant portion of your company’s vital information including finances, trade secrets and confidential details that distinguishes you from your competitors.
An NDA allows you to protect confidential aspects of your business with any buyers while sharing as much information as possible. NDAs are especially useful when an unknown buyer approaches you. Since you don’t know if they are trustworthy, the NDA prevents the buyer from sharing any company information with competitors or other entrepreneurs.
Another way to protect confidential information.
Even with the legal protection provided by an NDA, business owners should still be thoughtful about the confidential information they give out. Some unscrupulous counterparties to an NDA choose to ignore them, either thinking they have found a loophole or betting that the business owner won’t want to go through the time and expense of suing to enforce the agreement. It can be helpful in those situations to have a clause that grants attorneys fees if the NDA is violated. It is also vital that, even if there is an NDA in place, the business consider carefully just how much information it is necessary to give to another party. It is always important to ask whether the party you are giving information to (including employees) “really needs to know” that information. If the answer is “no”, don’t give it.
Plan ahead and don’t go it alone
There are several points at which it is a good idea to put an NDA in place. Every business should have a good solid NDA to work with for each of these situations and should have a strategy in place for using them. It takes time and diligence to craft the right NDA for your company, so it is a good idea to have competent counsel draft it for you. Gregory and Adams, P.C.‘s business attorneys have drafted hundreds of non disclosure agreements for all kinds of situations, and can help your business put the right NDA together.