A Guide to Non-Disclosure Agreements
A Non-Disclosure Agreement, or NDA, is one of our most highly requested contracts—but what exactly is it? An NDA is an agreement between two parties, typically a “Disclosing Party” and a “Receiving Party”, in which confidential and proprietary information is both protected and prevented from being shared with others. In a nutshell, as a small business owner and entrepreneur with innovative ideas, an NDA can help prevent those ideas from being stolen or used in an unwanted way.
Unilateral NDA vs. Mutual NDA
Like most agreements, there’s more than one type of NDA. The two primary types of NDAs are: unilateral and mutual (or bilateral). A unilateral non-disclosure agreement is beneficial in circumstances in which only one party is disclosing confidential information. This type of NDA may be useful in a situation where you are interested in bringing on a new partner to your business, which may involve disclosing financial information, marketing strategies, a process, etc. On the other hand, a mutual non-disclosure agreement is utilized in circumstances in which both parties are sharing confidential information with each other. This may be useful in a situation where you are contemplating merging your business with another business, requiring both parties to disclose and exchange certain proprietary information. Overall, a unilateral and mutual NDA are not wildly different, but instead are used for different purposes.
When Might I Utilize an NDA for my Business?
Now that we’ve discussed the primary types of NDAs that are available, you may be wondering when exactly you will utilize one and is it actually necessary. Generally speaking, an NDA can be used any time confidential information is shared with another individual or business. To help you decide if an NDA will benefit you and your business, we’ve compiled a list of the most common scenarios that you may encounter in the management of your business in which an NDA can be utilized:
Employees– Most businesses have employees, right? Well it’s highly likely that your employees are exposed to certain pertinent confidential information that non-employees do not have access to. If you’ve had employees with you from the very beginning, they may be privy to your specialized processes or even your client or customer lists. Unless you already have a written non-compete agreement in place, what’s stopping an employee from opening their own competing business using your client list and specialized process?
Potential New Partners or Members– Maybe you started your business as a sole proprietor or a single-member limited liability company, and now you’re expanding and ready to bring on a partner or member. A potential partner may want to know how you developed the product, your marketing strategy, your price list, etc. Remember the key word here, “potential”, so you don’t want to make the mistake of disclosing this information without an agreement in place to protect it.
Prospective Investors– Not every entrepreneur has unlimited funds to start and maintain their business, and at some point, you may want to speak with investors so that you can raise funds and keep building your business. A prospective investor may want to see your business’s financial records to determine whether the business is truly as profitable as you say it is. It’s likely you’ll converse with several prospective investors, so you’ll want to ensure your financial records remain confidential.
Marketing Services– Some businesses may hire social media influencers or other marketing experts to help promote their brand, product or service, which may involve giving access to the business’s website, social media accounts, and email marketing campaigns. In this day and age, social media is key to how a business operates and its reputation. Many businesses spend thousands on marketing and building their social media presence, so it would be a shame if an asset of that nature weren’t protected to the fullest extent possible.
Mergers and Acquisitions– Now that you’ve spent countless amounts of time and money building a successful business, you may be interested in selling to or merging with another company. Naturally, there will be financial, management, operational, and other proprietary information shared in this scenario, and not every merger or acquisition ends in a successful deal. Not only will you be sharing your confidential information to another company, but they will be sharing their own confidential information with you - so a mutual NDA would benefit both parties greatly in the long run.
As entrepreneurs and small business owners, we know just how valuable your business is, and we’re not just talking about money. We want to help keep your innovative ideas protected. You can purchase our Confidentiality and Non-Disclosure Agreement today! Don't forget to check out our Start-Up Package for LLCs!