A Guide to NDAs, and When Your Business Needs One

Often, your business will run into situations that will require you to share confidential information with another company or individual. When these situations do arise, putting a non-disclosure agreement (NDA) in place is a prudent measure to protect sensitive information, your business’ confidentiality, and proprietary business information.

What is an NDA?

An NDA is a legally binding contract that establishes a confidential relationship between your business and another. (They are also referred to as confidential disclosure agreements, confidentiality agreements, and proprietary information agreements.) Those signing the contract agree that any information exchanged cannot be made available to any other parties. NDAs are commonly used within business transactions, such as a merger or acquisition, during the due diligence process in which sensitive information is exchanged. There are two types of NDAs:

  • Non-Mutual Agreements, in which only one party is required to maintain confidentiality, as they are the only ones receiving sensitive information. For example, a non-mutual agreement may be used with a new employee that has access to sensitive information about the business.
  • Mutual Agreements, in which both parties share and agree to not disclose any confidential information. A mutual agreement would be used between businesses considering a merger, for example.

When Should My Business Use an NDA?

Essentially, your business should enter into an NDA when sharing any information that is inherently valuable or private to your business. The information shared is to be used only for the limited purpose for which the information is being disclosed. Below are common scenarios that would require an NDA.

Product Development

If you’re contracting a vendor to either develop, manufacture, or distribute a product that belongs to your business, an NDA can ensure that your design is not replicated, stolen, or otherwise shared. Similarly, if you’re pitching an idea to a company that takes product idea submissions, an NDA should be used to protect your idea. Patenting your idea is another proactive, protective measure you can take.

Employee Access to Sensitive Information

The last thing you want as a business owner is for a former employee to take proprietary information, trade secrets, and business practices to open up their own competing business. Requiring new employees to sign a non-mutual NDA upon hiring can protect your business in the long-term. The NDA can cover any information you want to protect, such as intellectual property, client lists, knowledge of business practices, financial information, or specialized training.

Negotiations with Prospective Buyers

If you’ve been considering selling your business, the thought of sharing sensitive information with multiple prospective buyers can be daunting. An NDA when selling your business will not only prevent your confidential data from becoming publicly available, but also can hide the fact that you’re selling. This reduces the chance of client and employee turnover during the selling process.

The same applies to any business transaction in which due diligence must occur.

Utilizing Outsourced Business Services

If your business contracts an outsourced service provider to execute some function of your company, a non-mutual NDA can protect any information that the provider might handle. This is especially important when the service provider works with sensitive financial information or has access to log-ins, email lists, your website, or social media accounts.

If you do not currently have any NDAs in place, or you are involved in business dealings that could benefit from additional protection, an outsourced attorney can step in to help draft an ideal contract for your business’ needs. An outsourced attorney can ensure that the NDA is thorough enough to protect sensitive information and establish the terms of the information exchange, as well as help you identify any terms that you are and are not willing to negotiate.


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