4 situations That Require a Non-Disclosure Agreement(NDA)
By Joanne Hue, Updated: 2023-06-21 (published on 2023-01-13)
Non-Disclosure Agreements are legally binding contracts where the involved parties agree to sign an NDA as a promise to keep some form of information or knowledge confidential. As a business owner, you could be faced with situations where you are required to use NDA to share confidential or private information with someone else. But this can be daunting if you fear the other party could use it to their benefit. NDAs are a wonderful tool that helps build trust and keeps you and your business safe. However, businesses are limited in their use of NDAs. There are actually different scenarios where using an NDA can really be beneficial in protecting your business.
NDA or Non-Disclosure Agreements are also known as confidentiality agreements or Confidential disclosure agreements. It helps ensure that the information you share is not disclosed or exploited. They are commonly used to handle information that is sensitive in nature. NDAs are widely used across different industries from medicine and tech to trade and for varying reasons as well. Let’s discuss a few common situations where NDA are required:
Scenario 1: Business negotiations
NDAs are often used during business negotiations when working on a deal with another company or individual. For instance, if one is considering a business merger with another company, a bilateral NDA needs to be signed so both parties can keep their respective sensitive data safe. Similarly, if two companies are planning on a collaboration or working together on a project and there are confidential information that needs to be shared for this purpose, an NDA is immediately signed.
NDAs play a crucial role in protecting confidential information that is shared during a business negotiation process. These often include relevant data, strategy and marketing plans, and proprietary tech.
Scenario 2: Collaboration with external partners
It is a common practice to get additional help from consultants or get special hires for specific projects. However, working with an external partner could mean having to reveal inside information to them even if they are there for a short period of time and only available temporarily. NDAs are very important in these cases as they help keep personal data and trade secrets safe even after the term of the project has ended. It helps to protect from misuse of the information shared for the purpose of the project elsewhere. NDAs used during collaboration with external partners help to secure information such as revenues, customer lists, business strategies, and plans, as well as Intellectual Property.
Scenario 3: Employee onboarding
Whenever new employees are hired, they will have to be provided with a full briefing and in some cases training to prepare them for the job at the new workspace. However, depending on the job at hand, companies could also be required to grant access to or share business information that is sensitive and private too. NDAs play an important role in making employees understand their obligations toward keeping such information safe.
NDAs in this scenario are particularly important as employees could always eventually leave the company and move to another and you wouldn’t want your employee to go on with your information. Also, employees could decide to leave with a company secret and start their own company with the same information they gained at the previous employer’s place, and having an NDA is a good way to stay safe from this. NDAs help to enforce obligations beyond the employment period.
Scenario 4: NDA for the sale of Inventions or for licensing
When a new product or technology is introduced or discovered. Businesses could seek out new investors or try to license the discovery or invention. However, before disclosing anything in full they could require that they sign an NDA first. This will decrease the risk of sharing or leaking unique knowledge to other parties.
Importance of NDAs in protecting sensitive business information
NDAs help to protect information and secrets that usually hold monetary value. This is usually information that could cause great losses to a company if revealed or put out in the open hence it is important for businesses to protect their sensitive information. These secrets could be both technical as well as commercial in nature. If the signing party ends up breaching the contract, it gives you legal protection and grounds for recourse and recovery so you can claim compensation.
Apart from these clear-cut reasons, NDAs are also required in many situations as they help clarify what can be classified as confidential information and set the ground for expectations regarding how it will be dealt with.
You may also like:
- Everything you need to know about Confidently Agreement
- What situations or circumstances might make an NDA unenforceable?
- Non-Disclosure Agreement (NDA) Template
- How do companies use NDAs?