Regardless of the type of business you own, it’s imperative to keep confidential trade secrets, resources, and other pertinent business information. This is key if you want to remain competitive in your industry, and also to feel protected as you move to expand. When contemplating doing business with other entities or individuals, protecting shared information should be a top priority. The best way to protect your brand or business is to have a solid nondisclosure agreement (NDA) in place. Read on to learn the purpose of an NDA for entrepreneurs, as well as who and what it protects.
What is an NDA or confidentiality agreement?
A nondisclosure or confidentiality agreement is a contract that governs how parties should receive and protect sensitive business information. In particular, if you are thinking about entering into a business relationship with a third party, you often have to discuss certain insider business information to determine whether the working relationship works and whether it is a good fit. An NDA lays out how that information must be protected and used. It, also lays out consequences or remedies if a breach of contract occurs.
What is the purpose of a nondisclosure agreement?
The purpose of an NDA is to protect sensitive information related to your business from getting into the wrong hands. When you own a business, especially an online business, employing an NDA can protect your products and services. Starting a business in the online space can be competitive. A non-disclosure agreement gives you the peace of mind to talk to people about your new ideas and business direction. Should the other party share or use that information inappropriately, you can seek legal remedy.
When implementing an NDA, it is most effective when signed by both parties before any information is exchanged. This allows you to define exactly what confidential information the NDA includes, and ensure it is protected from the outset. This includes processes, design, source code, financial, trade secrets and the like. A solid non-disclosure agreement will be tailored to your business.
Pro tip: If a third party doesn’t want to sign an NDA, this may indicate a red flag in certain instances. Be mindful.
Having an NDA in place is a good idea when you’re looking to work with a third party in your business, particularly when you don’t have an established relationship with them or trust established. The purpose of an NDA, in this case, is clear; it ensures you can share ideas with potential collaborators while still protecting your interests. Remember, you cannot copyright an idea or concept. So, a non-disclosure agreement may be the only way to protect your business ideas when reaching out to third parties.
What makes for a well-written non-disclosure agreement?
A well-written NDA lays out in detail how the information provided to the third party will be used. It also includes important provisions specific to your business. For example, an anti-circumvention provision within your NDA will deter a third party from working with vendors or business partners that you introduce them to without your consent or outside the project scope.
Having a comprehensive non-disclosure agreement is the best way to protect yourself, your ideas, and your business or brand when working toward expanding and growing your business while connecting with third parties.
Three Key Provisions Every Nondisclosure Agreement Must Include
There are certain provisions or key terms that any NDA should contain. Those terms include:
1. Type of information to be protected.
Provisions include what information should be protected and depend on the type of business you have and should be tailored to these unique needs. For example, if you own a restaurant or create food products (or even skincare products, for example), you may want to protect your unique formulations and recipes, and, therefore, having provisions about your recipes may be essential. If you’re a business coach with a unique methodology for teaching, then that signature method should be protected at all costs. And of course, you want to protect sensitive information like customer lists and vendor information, regardless of the industry you’re in.
2. Non-Solicitation or Circumvention Clause.
When working with a third party, particularly one with which you don’t have a prior relationship, it’s important to include Non-Solicitation and/or Non-Circumvention clauses within your NDA. Does the third party have access to your customer lists, vendors, or sensitive contacts? If so, you must ensure that third parties do not use this information for their own use or, worse, for other customers. Having terms that dictate that the other party cannot circumvent you and work with contacts that they get in the working relationship with you protects your sources. It also protects your business reputation. Because the last thing you want is some random person reaching out and cold-calling your trusted contacts.
3. Injunctive and other relief verbiage.
Finally, an NDA should include rights and remedies if someone violates the conditions of the non-disclosure agreement. An injunction order forces an individual or company to perform a desired action. In the case of an NDA, it is likely that an injunction would stop a third party from using or disclosing sensitive information. A non-disclosure agreement should include injunctive relief language, along with other appropriate remedies, if you want the party receiving the information to comply with the agreement. This is the ‘bite behind your bark.’. This remedy clause details how to go after that entity if they violate the agreement. It also gives you options on how to enforce your protections.
Now that you know the purpose of an NDA, are you ready to protect your business?
Every business should have a nondisclosure agreement. Period. It is critical for businesses looking to expand their reach and scope. To expand, you will need assistance at some point. And before you fill that other person in on the ins and outs of your business, you want to make sure you have a strong and comprehensive NDA in your back pocket and ready for signature.
The Legal Pad helps small online businesses that don’t have a full legal budget protect their businesses. It provides various contract and agreement templates to protect your intellectual property, products, ideas, or services. If you’re clear on the purpose of an NDA and ready to move forward, consider the Non-Disclosure Agreement Template. For online business owners with greater business needs, the Business Essentials Bundle is perfect. In addition to the NDA, it includes:
- Transfer of Copyright Agreement
- an Independent Contractor Agreement, and more.
Nothing in this article constitutes legal advice nor forms an attorney-client relationship
between the reader and Hughley Smith Law.