At any point in doing business, whether you’re an established company, an entrepreneur or a start-up, you are bound to have to communicate ideas, confidential information and even trade secrets. But how can you be sure that what you share with another party allows you to further your business goal, instead of conflicting with or even killing it?
The answer is by requesting and issuing a non-disclosure agreement, otherwise known as a “confidentiality agreement” or “NDA.”
The purpose of taking this legal step is to ensure the free flow of information between you and other parties that are united by a common business interest – whether you already have a working history together or you are only thinking of building one. You might want to show a new product or technology to a potential buyer or present a business idea to a partner or investor. Or you may simply need to share financial and marketing records with a prospective buyer.
Any time you want to transmit something valuable while ensuring that the involved parties don’t use the information without your knowledge and approval, then you need a non-disclosure agreement to get complete confidentiality.
Let’s see which important steps you need to consider to prepare a proper NDA that protects you as broadly and securely as possible:
Contrary to what you might believe, a good non-disclosure agreement isn’t long and complex. Instead, it’s a very concise outline of what the contract must contain.
First, it starts with the recognition of the entities involved. The disclosing party is the one that gives out the information and usually requests an agreement as such, while the receiving entity is the one who gets the information and is obliged to protect it. As a receiver agreeing to the contractual terms, you must ensure that you guard the info at any cost and make sure that any of your employees that have access to sensitive business details or trade secrets do not leak them to a third party.
Secondly, another technical aspect is the duration of the agreement. Depending on the industry, the parties may agree that it’s sufficient to keep it active for one year, while other contracts last forever. In most cases, though, it’s safe to have an expiration date that ranges from two to five years, as most non-disclosure agreements do.
The whole purpose of a non-disclosure agreement is to ensure confidentiality. The recipient of the confidential information is legally bound to keep it secret and not use it himself. After all, the last thing you want is for the other party to take your great idea or research and make money out of it in your place.
But the trickiest part of any NDA is to properly and broadly determine what is confidential. Is it anything that you discuss orally during your meeting, or only the things you indicate in writing? An accurate and clear definition of confidential information is the most important point of all this.
For instance, if a party will be disclosing a mailing list, then “mailing list” — or similar words that cover that idea — should be in the section regarding confidential information. Other times, the details that are shared go under the umbrella of intellectual property, and a well-crafted non-disclosure agreement should clearly state that sharing any intellectual property information with the other party does not create any license, transfer or grant of rights over it.
The idea is to make the definition of what is classified as confidential as broad as possible so that the other side doesn’t find a flaw in the contract that allows them to use any valuable details and secrets.
A Word of Advice
While an NDA is sure to prevent leaks and misuse of information, there are occasional exclusions from the confidential treatment that you must also be aware of. If what you disclose is already known by the recipient or has been communicated to him by another party that has no confidentiality duty to you directly, then the agreement cannot protect you and incriminate the other side. Also, if any legal trial demands, whatever you shared with your recipient is going to come out in the process.
When the moment comes, use these tips to exchange private and confidential information without unwanted negative repercussions, no matter what business or position you are in.