NON-DISCLOSURE AGREEMENT (NDA): Your First Line of Defense for Business Secrets
In today's cutthroat business world, keeping your private information safe is more than just important; it's necessary. A Non-Disclosure Agreement (NDA) is your first line of defense against information theft and misuse, whether you're a startup founder talking to potential investors about your groundbreaking idea or an established business sharing sensitive data with vendors.
What is an NDA Agreement?
A Non-Disclosure Agreement (NDA), also called a confidentiality agreement, is a legally binding contract between two or more people that lists private information, knowledge, or material that the parties want to share with each other for certain reasons while keeping third parties from seeing it.
Think of it as a promise that the law backs up: when someone signs an NDA, they are legally bound to keep your secrets safe. This document makes the relationship between the parties involved private and lists the information that must stay private.
People often use NDAs when they are negotiating a deal, forming a partnership, hiring someone, or any other time they need to share private information but keep it safe.
Different Kinds of NDA Agreements
Unilateral NDA:
In this deal, one party tells the other party private information. This is the most common type, and it's often used when hiring workers or working with consultants.
Bilateral NDA:
A mutual NDA is another name for this type of agreement. It means that both parties give each other private information. This type is common in joint ventures, mergers, and strategic partnerships where both sides need to be safe.
Multilateral NDA:
This is when three or more people are involved, and at least one of them shares information that needs to be kept secret. It makes things easier by getting rid of the need for separate agreements between each party.
Why Your Business Needs an NDA
An NDA is more than just a legal formality for business owners and entrepreneurs. It's a strategic tool. Here's why it matters:
Your business ideas, customer lists, pricing plans, and trade secrets are worth a lot of time and money. If you don't protect yourself, competitors could easily copy your success or partners could take advantage of your trust.
When you pitch to investors, negotiate with suppliers, or hire new employees, an NDA makes sure that your private information stays private. It makes people legally responsible and gives you options if someone breaks their promise to keep things private.
Seven Important Things to Think About When Writing Your NDA
1. Carefully look over the obligations
Don't be fooled by the title. Even though the document is called a "non-disclosure agreement," it often has more than just confidentiality clauses.
Non-compete clauses in many NDAs stop you from working with competitors, and non-solicit clauses stop you from hiring the other party's employees. These duties can have a big effect on how your business runs.
Read every clause carefully before you sign. You might find that you need to sign separate NDAs with any third parties you share the information with. If you're the one who gets the money, you need to keep track of these new agreements.
Don't be afraid to renegotiate if some of the terms seem too strict or unrealistic for your business. Keep in mind that contracts should be good for both parties, not just one.
2. Set the limits of what information is private
This is where most deals are made, and for good reason. What is protected and what is not is based on what "confidential information" means.
As a disclosing party, you want a lot of protection. Ideally, everything you share should be private. However, the people who get the information would rather have narrow, specific definitions that make it clear what information needs to be kept safe.
A practical way to do this is to make the person who is sharing the information clearly say which information is private at the time of sharing. This stops problems and misunderstandings from happening later.
Think about whether a broad or narrow definition will better meet the needs of your business, and then negotiate accordingly.
3. Know what options you have for disclosure
What do you do if someone breaks their promise and tells others your private information? This needs to be made clear in your NDA.
Most of the time, NDAs offer two kinds of remedies:
Damages in Money:
The person who broke the agreement pays for the damage caused by the disclosure. But it can be hard to figure out exactly how much damage was done by the disclosure of information.
Injunctive Relief:
A court order telling the person who broke the law to stop sharing information and give back all confidential information. This is the better solution for a lot of businesses because some information, once made public, can cause damage that money can't fix.
Most well-written NDAs say that injunctive remedies are available because stopping more harm is often more important than getting money back.
4. The need to mark things as "Confidential"
Some NDAs say that only papers that are physically marked "CONFIDENTIAL" are protected. This sounds simple, but it's not always possible.
Think about letting a consultant into your whole company's server. Would you really mark every email, file, and document as private? What about things that are said in meetings or on the phone?
If you're giving out information, you shouldn't have to mark it or do it as little as possible. They make things harder to manage and may leave gaps in protection if you forget to mark something.
If you're getting information, make sure to mark the requirements. This makes it clear what needs to be protected and lowers your risk of accidentally giving out information.
5. Include standard exceptions and disclosures that are needed
There shouldn't be any absolute confidentiality obligations. Every NDA needs to have some practical and legal exceptions.
What if a court orders you to give up the private information? What if the rules set by the government change and some information has to be made public? You can't expect someone to break the law or court orders just to keep things secret.
Also, information that was already public, known to the person receiving it, developed on its own without using your confidential information, or given to you by a third party without any confidentiality restrictions should not be included.
These standardized exceptions protect both parties from unfair liability while still keeping truly secret information safe.
6. Information Return Terms
What happens to your private information when the business relationship ends?
Most NDAs say that the person who gets the information must return or destroy it. This works well for things like paper documents, USB drives, company laptops, and other things that can be touched.
There are problems with electronic information. Is it really possible to delete all of your emails, backups, and cloud storage copies? Some NDAs say that the receiving party must delete all copies, while others say that they can keep copies for legal or record-keeping reasons.
This clause is especially important for consultants. You might want to keep copies of your work as portfolio examples (to be used after the confidentiality period ends) while agreeing to give the client back the original documents.
The most important thing is to find a balance between protecting the interests of the person who is giving the information and letting the person who is receiving it keep reasonable records of the business relationship.
7. Length of time that confidentiality lasts
How long should private information stay private? Most of the time, forever isn't useful or needed.
The right amount of time depends on the type of information and business you have. In technology fields that move quickly, product information might be out of date in two to three years.
But customer lists, supplier relationships, and business plans might still be useful for a long time, sometimes five to ten years or more.
When you talk about how long your information will last, think about how much it will really be worth and how long it will last. Potential partners might be hesitant to sign if the time frames are too long, but if they are too short, you could be at risk.
Even after the main contract is over, confidentiality obligations often stay in place. To avoid problems, make sure your NDA clearly states how long it will last.
How to Handle an NDA Agreement
There are a few steps involved in making and using an NDA:
Step 1: Find out what information needs to be kept safe and who will be able to see it.
Step 2: Pick the right kind of NDA (unilateral, bilateral, or multilateral) for your business relationship.
Step 3: Write the contract, making sure to include all the important terms we talked about above and make them fit your situation.
Step 4: Go over the draft carefully, preferably with a lawyer, to make sure it protects your interests without being too strict.
Step 5: Talk to the other party about the terms. Be ready to give up some terms while sticking to others that are very important to your business.
Step 6: Sign the agreement with the right people from each party who are allowed to do so.
Step 7: Keep track of all signed NDAs and make sure everyone follows them during the relationship.
How GetLawyer.me Can Help You
It takes both legal knowledge and business sense to understand the ins and outs of NDA agreements. We know that every business relationship is different at GetLawyer.me , and that standard contracts don't always offer enough protection.
Our team of lawyers with a lot of experience can help you:
- Draft customized NDAs which that meet the needs of your business and the rules of your industry.
- Review NDAs that other parties send you to find potential problems and bad terms.
- Negotiate terms that protect you while still being useful.
- Enforce NDA breaches through litigation or other means when necessary.
- Advise on compliance with the confidentiality obligations you've agreed to.
We help startups, established businesses, entrepreneurs, and professionals in many fields protect their private information.
We make sure that your NDA gives you strong protection without getting in the way of your business growth, whether you're starting a new partnership, hiring key employees, or sharing your new ideas with potential investors.
Important Things for Business Owners to Remember
If you own a business or want to start one, keep these important things in mind:
- Never share private information without a signed NDA in place.
- Before you sign an NDA, make sure you read it carefully and don't assume it only covers privacy.
- Make sure that the terms you agree on are based on the facts of your business and not just what the other party wants. Include clear remedies, reasonable exceptions, and practical time frames.
- Get legal advice if you're dealing with complicated contracts or sensitive information that could be worth a lot of money. - Keep track of all your NDAs and make sure everyone is following them.
Your private information is an important business asset. Taking care of it correctly today will save you money on fights and give you an edge over your competitors tomorrow.