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Certain information is valuable to your company, and you must protect it. This could be information concerning staff salaries, intellectual property (IP) or confidential business deals with other companies. Many organisations use the term ‘confidential information’ to describe information that may harm the company’s interests if disclosed outside the business. One method of protecting confidential information from unauthorised disclosure is using non-disclosure agreements (NDAs). This article will explore the main advantages of using an NDA to help protect your company’s confidential information.
What is a Non-Disclosure Agreement?
An NDA is a form of contract which sets out when another party can and cannot use or disclose your company’s confidential information to others. It is a myth that companies only use non-disclosure agreements with employees. Whilst many NDAs cover staff, your business is also likely to wish to protect confidential information in the hands of third parties.
Why Would a Third Party Have My Company’s Information?
There are many innocent situations in which another organisation could hold confidential information belonging to your company. This may include the following:
- using a tax advisor or accountant to manage your finances;
- hiring an external business consultant to help grow your business;
- pitching products to investors and other companies; and
- providing specific design information to a manufacturer.
This article will consider NDA arrangements with third parties rather than staff. Let us consider the three key benefits to your company of using NDAs below.
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1. Limiting Use of Confidential Information
A well-drafted non-disclosure agreement could define ‘confidential information‘ and then move on to how the other party can and cannot use it.
2. Certainty of the Correct Use of Information
It is not uncommon for the disclosure of your confidential information to happen unwittingly. For example, the other party may not realise the importance to your business of keeping certain pieces of information to themselves. Thus, an NDA can provide certainty between parties in clarifying what information is valuable to your company. This also helps your organisation in case of a breach. If you specify the confidential information, the other party cannot argue they were unaware it was confidential.
3. Legal Remedy to Prevent Disclosure
One of the main advantages of an NDA is that it deters the other party. This is because individuals are aware breaching an NDA can result in expensive legal action against them.
Legal actions usually include an application for compensation from the other party for likely damage caused by their breach of the NDA. If valuable information is leaked, the damages could potentially be in the thousands (or tens of thousands).
Key Takeaways
It is good practice to protect your business interests by using an NDA. Naturally, most individuals and organisations view the NDA as a binding legal contract with significant consequences in the event of a breach.
If you need help with non-disclosure agreements, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Some companies or individuals refuse to consider signing NDAs. If you cannot persuade them otherwise, you will have to weigh up the likelihood of them misusing your company’s confidential information against the benefits of engaging with them.
While you can protect some trade secrets through other methods (such as patents), it is advisable to avoid disclosing them outside your company unless truly necessary. For example, if your company is desperate for outside investment due to extreme financial difficulties, you may consider it worth dealing with the investor without an NDA. However, outside such extreme circumstances, many investors may view an NDA as a reasonable restriction whilst sizing up a business.
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