You’ve had your lightbulb moment, set up your business, and now you’re in the process of growing and developing it. After investing time, energy (and money) getting to this point, it’s paramount that you protect yourself and your business. One way to protect a business is with the safeguarding benefits of a non-disclosure agreement (NDA).

In this article we will walk you through what a non-disclosure agreement is, some examples and benefits, and tips on how to create one.

What is a non-disclosure agreement?

A non-disclosure agreement is a legal contract which deals with confidentiality. They’re usually put in place when a business or person needs to share information but wants that information to be kept private. For example, if you’re buying a business and ask the current owner to share their financial reports with you, they might ask that you sign an NDA first.

NDAs tend to follow the format of most legally-binding business agreements, including sub-headings, clauses, and the signature of everyone involved.

Different types of non-disclosure agreement

In very broad terms there are two types of NDA:

• Unilateral NDA: One side must disclose sensitive information, and the other side promises not to reveal it to anyone else. For example, employers and their employees.
• Mutual NDA: Both sides are required to reveal information to each other, such as business partners in a partnership. You might find that the NDA is required as part of a letter of intent, when you explain the details of your plan to buy or sell a business.

Why do I need a non-disclosure agreement?

An NDA dictates how and when to reveal information, if at all. If you need to share sensitive information with someone, they can’t go on to reveal it without your express legal permission. If they break the terms of the agreement, you’re able to take legal action against them. You might implement an NDA to:

• Protect your intellectual property (IP)
• Keep sensitive or confidential information private
• Prevent the release of information that you’re not yet ready to reveal to a larger audience

Non-disclosure agreements can restrict the sharing of information for a temporary period of time, or on a permanent basis.

When would I need to use an NDA?

There are plenty of reasons why you might want to ask someone to sign an NDA. For instance, if you’re in talks with another business about a long term working relationship, having a non-disclosure agreement in place protects you both when revealing any sensitive information.

Other examples might include employees, consultants, or designers that you bring in to work on a commercially sensitive R&D project which you want to keep under wraps. You could even ask potential buyers to sign an NDA before revealing any information to them whilst selling the company.

The benefits of non-disclosure agreements

An NDA is classed as a legal contract but they’re not always a requirement, like an employment contract is for instance. It’s for you to decide whether or not to request a NDA.

An NDA ensures that everybody is on the same page

It’s a way of ensuring that everybody taking part in a project or discussion knows where they stand, and is well aware of any boundaries. Signing a document confirms that this is the case.

Supports trust and peace of mind with new partnerships

Trust is such an important factor when it comes to protecting your business, but it doesn’t just happen immediately. Having NDAs in place can give you a more confident starting point, so you can go on to build strong professional relationships within a safe space.

Encourages more open discussions and negotiation

Following on from the previous point, having a NDA does allow more transparent discussions and open-minded collaboration to take place.
 

What you and your business are at risk of without an NDA

When running a business, you come into contact with more people and have more conversations than you might recall having. Day in, day out, you’re dealing with customers, investors, manufacturers, stockists, suppliers, partners, shareholders – the list goes on. Each of these is a potential leak of sensitive information.

Choosing not to implement a non-disclosure agreement simply means you’re putting yourself and your business at risk of exposure if this information gets into the wrong hands.

In some cases, this exposure can lead to the loss of intellectual property, or a competitor stealing an unprotected idea before you’ve had chance to consolidate it as your own.

How to write a watertight non-disclosure agreement

There’s a huge array of NDA templates available to download from the internet, which leaves you to edit the applicable information.

If there’s not much room in the budget for professional advice, this is a great option. Just make sure that the template you download is from a reputable and reliable source.

Typically it will need to follow a few essential rules.

• Make sure to title the document ‘Non-Disclosure Agreement’, so everyone signing it is fully aware of the implications and their obligations
• Explicitly define exactly what the confidential information is, and what it encompasses. Define and describe this through a paragraph within the document, but then also include an itemised list of what’s classed as sensitive information to make it crystal clear for those reading (and signing) it.
• In the same way you should clearly define what is included under the NDA, it’s also good practice to outline what is excluded
• Although it might seem obvious, you will also need to include a section which explicitly outlines the obligations of those signing the NDA. For instance, that under the agreement they are legally bound to contain the information included, and are not permitted to disclose it until further notice.
• It’s highly unlikely, but there might be some cases in which third parties are called upon to disclose protected information (such as legal circumstances or court cases). Clearly define within the document when breaking the agreement is acceptable.
• Include advice on how the third party should dispose of confidential information to a satisfactory level once your partnership is seen through

Other essentials to include

• The time period for which the NDA will apply (beginning and end, or start and ‘indefinitely’)
• Measures that will be taken in case of any breaches or disputes
• A clause which states clearly that the NDA overrules any other agreements prior to its creation

If you do decide to write your own NDA, get an expert to cast an eye over it!

Some important things to remember

If the parties involved are in different countries, the NDA must specify which country’s laws govern the agreement. It should also explain where it can be enforced.

Common practice is to implement an NDA for three or five years. Once the information has been made public though, a non-disclosure agreement can no longer be enforced.

Never disclose sensitive information before an NDA has been signed and secured. No matter how much you trust those involved, doing so voids the document.

Ideally, seek professional advice, especially if revealing information puts you or the business’s interests at risk. It’s also good practice to have somebody witness the signing of any legal documents (including an NDA).

Be as precise as possible to prevent any miscommunications or misinterpretations. You can loosen restrictions at a later date. But, once the NDA has been signed, you won’t be able to tighten it retrospectively!

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