Non-Disclosure Agreements: Effective Ways to Protect Your Business
In order for a business to maintain a competitive advantage, it needs to keep its innovative ideas secret. This way, its competitors don’t steal from them. The same can be true for film projects and startup companies with new ideas.
A non-disclosure agreement, or NDA, is a legal document that can ensure that this kind of sensitive information stays under wraps. These agreements might also be referred to as confidentiality clauses or confidentiality agreements (CA), within a larger legal document.
If you’re interested in learning more, then keep on reading and we’ll take you through everything you need to know about NDAs.
How Does a Non-Disclosure Agreement Work?
A non-disclosure agreement is usually used whenever sensitive information is disclosed to potential suppliers, clients, creditors, or investors. When you have confidentiality in writing and signed by all parties, you establish a greater sense of trust in these kinds of negotiations. You also deter the stealing of intellectual property. We recommend consulting with a local business attorney before signing or developing an NDA agreement.
The exact nature of the confidential information is going to be spelled out in the NDA. Some agreements will bind a person to secrecy for an indefinite period of time. This means that the signer can’t divulge the sensitive information contained in the NDA at any point in time.
Without this kind of agreement in place, any information that you disclose in confidence might end up being used for malicious purposes.
The penalties for breaking a non-disclosure agreement will be listed in the document itself and might include damages in the form of lost profits. Criminal charges might also be among the penalties. A good business attorney can help you create an agreement and ensure you are covering all the necessary points to secure your data and information. Do not fall into the trap of downloading a template from the internet and using it without consulting with a qualified Schaumburg business contract attorney.
Uses of Non-Disclosure Agreements
If you run your own business, there’s a good chance that you will need to discuss sensitive or proprietary information with outside parties. Sharing this information is very important when you’re:
- hiring key employees
- obtaining new clients
- finding potential partners in a business venture
- looking for new investors
In order to protect the person or people with whom this information is shared, NDAs are used as a legal framework to maintain trust and stop important information from being leaked and undermining the value inherent to the content.
Information that might require the use of an NDA might include:
- manufacturing processes
- proprietary formulas
- movie scripts
- secret recipes
Protected information also usually includes non-public accounting figures, sales or client contacts lists, or any other item that could set one enterprise apart from another.
For example, a new company that is looking to raise funds from investors might be worried that their novel idea could be stolen instead of receiving an investment. By making potential investors sign a non-disclosure agreement, they can legally prevent this kind of idea theft. Without an NDA, it will be a lot harder for the company to prove that their idea was stolen.
Also, a company that hires outside consultants might require someone to sign an NDA if they’re dealing with confidential information. A full-time worker might also need to sign an NDA when they work on a new project that hasn’t been revealed to the public yet.
The effects of leaking this sensitive information could harm the value of the project.
What Is Not Included in an NDA?
Not all of a business’s operations are meant to be kept secret. Public records, including the address of the company headquarters or data filed with the SEC, aren’t covered by non-disclosure agreements.
Courts also have leeway when it comes to interpreting the scope of a non-disclosure agreement. The language of the NDA is very important in these instances.
For example, if one party to the NDA can prove that they had knowledge covered in the NDA before they signed it, they might be able to avoid a negative judgment. They also might be able to avoid such a judgment if they can prove they acquired the knowledge outside the agreement.
It’s worth pointing out that not all knowledge is protected in a non-disclosure agreement. If the information is revealed because of a court-ordered subpoena, then the legal recourse by the aggrieved party might not be fruitful.
It should be noted that NDAs are not meant to protect embarrassing or criminal information.
Non-Disclosure Agreements Specific To Your Company
It’s not uncommon today to see law firms offering one-size-fits-all NDA templates. While this might seem convenient at first, it can also be detrimental to your business. You want to have an NDA that is specific to your company and the needs of your business.
These generic NDAs might not cover all of the necessary areas that you want to be covered. And they might not clearly state the kind of legal recourse that can be taken if a contract is breached.
This is why every single NDA needs to be specific and customized in order to guarantee full legal protection.
As long as the NDA is specifically written to meet the requirements and needs of your company, then you can rest easy knowing that your sensitive and proprietary information will be protected.
The Importance of Knowing About Non-Disclosure Agreements
Hopefully, after reading the above article, you now have a better understanding of what non-disclosure agreements are and how they work. As we can see, an NDA can be an effective way to make sure that your company’s confidential information will stay confidential. Just make sure that you have a legal team that is drafting documents specific to your business needs.