Non-Disclosure Agreements (NDAs): What are they, and does my business need one?

A Non-Disclosure Agreement (NDA) is a legal agreement that outlines and defines a set of material and/or information that the signers wish to keep secret from third parties. NDAs are also referred to as Confidentiality Agreements or Confidential Disclosure Agreements. As a small business owner, NDAs can stop your company’s sensitive information from falling into the hands of someone who wishes your business ill. So, when should you utilize one – with your clients? With your employees?  In conjunction with your other contacts?


What information does an NDA protect?

An NDA can cover any information that you want to keep confidential. This can include client lists, employee information, intellectual property, trade secrets, pricing structures, and marketing methods. Generally, you will want to expand the scope of “Confidential Information” to include as much information as possible; the broader the definition, the more material is protected. NDAs should cover pretty much all non-public business information.


When should I use an NDA?

Any time confidential information is being exchanged with a client, employee, prospective business partner, or basically anyone else, you should consider having that person sign an NDA. This is especially important in the following situations:

  • Hiring employees: If you work with sensitive information, you may want to have employees sign an NDA before they start working.
  • Business purchases or sales: NDAs are essential when buying or selling a business. If you are selling, you will have to disclose almost all of the information that your company has – IP, client lists, proprietary information, employee information, marketing strategies, etc.
  • Bringing on an investor or new business member: You will have to lay bare your company and its standing to this person (or entity). You want to make sure they keep this information confidential and do not use it against you.
  • Utilizing services with a vendor: If your business uses vendors to render its services, think about having them (and their staff) sign an NDA. You never know what information they may come across or who they may meet.


What are some common provisions in an NDA?

The definition of “confidential information” is the core of the NDA. This defines what is, and what is not, covered by the NDA.

The term of the NDA is just as critical. Many NDAs state that the provisions will remain in place for years, or even forever. Ten years is a common duration for an NDA, but you want your information to be protected for as long as possible.

NDAs should also address the destruction of confidential materials. Should confidential information be distributed to other parties, whether physically or digitally, these provisions detail how and when those materials should be destroyed in the event the transaction does not move forward. You do not want copies of confidential materials floating around.


Do you think you need an NDA for your business? Is a business sale in your future? If so, crafting a strong NDA is essential. Contact us today!


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