Importance of an NDA
Updated: Jun 22, 2021
An NDA or Non Disclosure Agreement is often used during negotiations to protect sensitive and confidential information from being made available by the recipient of that information. Non-disclosure agreements are commonly used by companies and startups to ensure that their ideas or processes won't be stolen by people they are negotiating or working with. Often referred to as confidentiality agreements, these contracts can be utilized any time confidential information is disclosed to potential investors, creditors, clients, suppliers, or other professional connections. Codifying the expectations and requirements of corporate confidentiality in writing and having the document signed off on by all parties can encourage trust and deter theft of intellectual property.
While some non-disclosure agreements bind a specific person to secrecy for an indefinite period of time, other agreements are only meant to last for a finite amount of time. Without a signed agreement, any and all information disclosed during the meeting or operation can be shared maliciously or be made public on accident. If an NDA is violated, the penalties are often listed within the agreement itself and can include damages in the form of lost profits. Effectively, the party who signs an NDA promises to not divulge or release information shared with them by the other party involved. If the information is leaked, the injured party can claim breach of contract and sue the signing party.
The substance of an NDA should be tailored to the type of business or industry in which it is being implement, but there are two broad types NDA contracts - unilateral and mutual agreements. Unilateral agreements bind one party. The majority of NDAs are unilateral agreements as they involve employees of the business, vendors, or clients. Though most unilateral agreements are intended to protect a company's trade secrets, they can also protect copyrights. Whereas mutual agreements are created between multiple businesses or parties that bind all parties involved to secrecy. This type of agreement is often seen when companies are engaged in partnership, collaboration, or merger, all of which require the sharing of proprietary information.
The key difference between mutual and unilateral agreements is who is being bound to secrecy. If the company is sharing proprietary information with a party but not receiving any proprietary information in return, a unilateral contract will typically suffice. Whereas, if the company is sharing proprietary information and receiving proprietary information in order to complete a task, a mutual contract will be required.
Properitary business information should be protected through every stage of a business. However, due to the complexity of non-disclosure agreements and the level of tailoring required to ensure the information is protected, it is highly advised to seek out an attorney when creating an NDA for your business.
If you or a business you know needs any assistance with an NDA or small business representation please do not hesitate to reach out. The Rose Law Firm is dedicated to providing small businesses with the counsel, friend, and confidant they need to help them succeed.