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A non-disclosure agreement (NDA) is a contract that small business owners can use to keep particular pieces of information confidential. An NDA prevents other parties from sharing specific information. NDAs can protect aspects such as information, data and ideas. This article will explain how NDAs can be helpful to small business owners.
What is a Non-Disclosure Agreement?
NDAs are often called confidentiality agreements. They are legal agreements shared by two or more parties that protect confidential information from being disclosed to others. The purpose of an NDA is to prevent any unauthorised use or disclosure of information. The agreement defines the specific information it protects and the extent to which the other parties are permitted to use it. An NDA can be one way, meaning only one party discloses confidential information. Alternatively, it can be a mutual NDA, where both parties disclose confidential information.
How Can Using Non-Disclosure Agreements Benefit My Small Business?
Small businesses can use NDAs to safeguard:
- sensitive information;
- commercial knowledge;
- trade secrets; and
- business ideas.
In addition, small businesses can use NDAs to protect themselves from the risks of others exposing their confidential information to competitors or other parties that may use it for their own gain. Furthermore, they can ensure such information remains secure and build clarity and trust within their business relationships.
Business owners can benefit from using NDAs in many types of business relationships. There are many situations where you may need to share information that you prefer to be kept confidential. People you may need to share such information with can include:
- potential advisors;
- employees; and
- suppliers.
For example, you may need to share information with a potential investor so they can conduct due diligence and decide whether to provide capital. Accordingly, you can use an NDA to ensure they only use this information to evaluate your business. They cannot disclose confidential information to another party. If they do, they can face legal consequences.
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Key Considerations for Non-Disclosure Agreements
When deciding whether to implement an NDA, consider whether disclosing the information to unauthorised parties could be potentially harmful to your business. If so, use one.
Confidential information does not include information that is already in the public domain. If any information an NDA protects is made public before the agreement’s time, then the information is no longer protected by the NDA.
Another vital consideration when drawing up an NDA is that it is realistic and does not constrain the other party to the extent they cannot carry out their role. For example, consider whether an investor may need to share the information with somebody else before they make their decision.
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Measures Beyond the NDA
NDAs can dissuade someone from sharing confidential information. However, they may still share it. If they do, they are in breach of contract, and you can seek litigation. If the other party shares the information, this can cause harm to your business. Once confidential information is made public, you cannot make it confidential again. Therefore, consider taking additional measures when sharing your information. For example, if you share information about an invention or new product, consider patenting that product to ensure exclusive use. Alternatively, if you share sensitive customer information with somebody, you could encrypt this information to prevent unauthorised access.
Before issuing an NDA, consider whether you need to share the information. Sometimes, the best way to protect your business is to keep the information private. However, in some circumstances, the potential benefits of the disclosure will outweigh the risks, or disclosure may be unavoidable.
Key Takeaways
A non-disclosure agreement is a legal contract between two or more parties restricting the usage and sharing of particular information. Sometimes, business owners must share information with others, including potential employees, suppliers, and investors. Small businesses can use NDAs to protect commercially sensitive information and, thus, their competitive position.
An NDA is a legally binding contract. Accordingly, you can enforce it and seek remedies in the case of a breach. However, be aware that you cannot protect publicly available information and that if the information covered by an NDA becomes public, it is no longer protected. For this reason, consider implementing additional mechanisms to protect your information, such as patents or encryption.
An experienced lawyer can draft an NDA that fits your business’s needs. They can ensure the contract is sufficiently robust and protects your information and ideas. If you need advice about NDAs and your small business, our experienced startup 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.
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