Strictly Confidential? You need a Non-Disclosure Agreement
10/05/2018 — by Alex Tanglao
By its very nature, conducting business requires fluid and comprehensive communication. There are many situations where sharing private and confidential information can be crucial.
This could be with an individual such as an investor or an entire company as part of a business to business negotiation. So how do you ensure that your confidential information is protected?
A Non-Disclosure Agreement (NDA) can safeguard this confidential information. It ensures that the other party fully respects your confidentiality and agrees not to disclose any information that has been shared. After all the most valuable assets a business has are its deepest secrets!
What exactly is an Non Disclosure Agreement?
Also known as a Confidentiality Agreement, an NDA is a legal contract by which a party agrees to keep information confidential. By signing this agreement, the receiver agrees not to disclose, use or exploit confidential information. The NDA will also specify the purpose of disclosing the information in the first place and how long the confidentiality obligations will apply.
When should you sign an NDA?
Broadly speaking, an NDA is a good idea whenever you are considering sharing valuable information about your business. It is crucial to ensure that the other party doesn’t take the information and either use it as their own, or use it in their own way without your approval.
An NDA ensures that all parties are agreed as to how information is to be treated. In turn this strengthens the confidential business relationship whilst also protecting proprietary information and trade secrets.
When would I need to share confidential information?
A company or individual should always evaluate any potential business relationship or partnership before agreeing to do business. If you are in talks with investors or manufacturers, for example, then a certain amount of confidential information will need to be shared In order to fully understand what a business transaction would involve.
Obtaining intelligence on each other’s business models and processes may be necessary before signing on the dotted line. Full disclosure however means that measures must be taken to ensure the information remains solely between the parties involved.
When you are starting out, you may have to tell people about your business idea to get advice from various experts such as banks, accountants, insurance brokers or marketing agencies. Don’t ever assume that such conversations with advisers are automatically confidential.
What are the different types of NDA?
An NDA can either be one way or mutual. A one way or unilateral NDA is required when an individual or business shares information with another party and the receiver agrees not to disclose the information. A mutual NDA is when both parties are sharing confidential information with each other and therefore both need to agree to maintain confidentiality.
Some employee agreements may also include an NDA clause. In this case, the employee agrees not to use or share confidential information that is owned by the company.
How long does an NDA last?
The length of the agreement should be included within the document. After this time, the information may be used or disclosed. However, once the information is launched into the public domain, the NDA is no longer enforceable.
Related reading: Legal Documents Every Business Should Have
What should be included in your NDA?
Most importantly, you must identify and clarify the information that should be included. This involves defining what exactly is confidential and needs to be protected. Examples of types of information that could be protected under an NDA include ideas for a new website, innovations, strategies, software programmes, manufacturing processes, and designs or information relating to finances and customers.
The NDA can also state that any information shared in presentations and meetings is similarly protected. Make sure the you include very specific information about any proprietary information and include examples. Define this as narrowly as possible but at the same time keep it concise. You should also clearly list exclusions from the definition of confidential information.
The NDA should also define the obligations of the party receiving the information. Mainly this obligation is to protect the secrecy of the confidential information as if it were their own. This also includes not influencing others to acquire the confidential information by improper means.
The specific dates for the NDA must also be outlined. You must clearly state the start and end date for when information may be exchanged between the parties. The NDA should also define a time period during which the Receiver is obligated to maintain confidentiality of the information.
An NDA can only be effective if it has been agreed upon and signed. It is simply unenforceable until this takes place and does not offer you any protection. It is crucial that signing takes place BEFORE you share any confidential information. Also, ensure that the right person with the correct authority signs the NDA such as a company director or a senior employee who is a decision maker.
Don’t just rely on an NDA to protect your information. An NDA is an effective measure and its very presence reinforces the fact that the information is sensitive thus reducing the risk of disclosure.
However you should take additional steps to protect your confidential information. Consider setting up information security policies. These could be physical protection of information i.e keeping it under lock and key and also ensuring your information flow is on a need-to-know basis.