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Why You Need a Non-Disclosure Agreement (NDA)

A non-disclosure agreement (NDA) protects private or proprietary business information. It is a legally binding document that ensures the signing party or parties will respect the confidentiality of your business. 

NDAs are beneficial when you want to share valuable company information and make sure another party doesn’t use–or even steal–the information without your approval.

There are several business situations where a non-disclosure agreement is necessary.

Selling or Licensing Technology

If you’ve developed technology and want to sell it, having an NDA in place during negotiations protects your intellectual property. It prevents the other party from sharing confidential information with any outsiders and keeps your idea safe from competitors.

If You Give Employees Access to Confidential Information

You’ve worked hard to build your business, including creating proprietary processes; establishing client lists; and building relationships with vendors, manufacturers, and suppliers. 

A non-disclosure agreement as part of the conditions of employment keeps your employees from taking your information and using it to benefit a competing business or starting their own.

A business lawyer should draw up your employment NDA and structure it specifically for your needs. Make sure it includes how the agreement will be enforced should it be breached. Many employment NDAs also include a non-compete clause.

Making an Offer to a Potential Partner

If you’re bringing on a new partner to grow your business, or offering an investment opportunity to another party, having an NDA in place during negotiations protects your interests. You’ll have to reveal sensitive information about your company, including finances and details about your clients, and an NDA keeps that information confidential.

Be wary if you’re approaching a venture capitalist for a start-up business, as many of these investors refuse to sign non-disclosure agreements. Having a business lawyer advise you during the process ensures that your interests are protected.

Providing Services to a Company with Access to Sensitive Information

If you’re a service provider or marketing consultant, you may have access to a lot of proprietary information about your clients. Email addresses, customer demographics, and sales leads may be part of the information you need to complete your service.

NDAs also protect your clients by shielding their information while your company provides the contracted service. Any time you have access to another company’s proprietary information, an NDA protects you both.

Working with a Prospective Buyer

If you’re considering selling your business outright, potential buyers will ask to see just about everything, from your financial records to your business plan, client information, and more. 

If you’re entertaining acquisition offers, having an NDA in place protects your bargaining position in addition to sensitive company information. All of your operations and fiscal information will be presented to the buyer. During this process, you want that to stay safe.

Another reason to have an NDA if you’re selling your business is protection from buyers who aren’t serious. Some investors may be “just browsing” or not have the wherewithal to purchase your business. Make sure your potential buyer can provide proof of funds and the ability to finalize the purchase before starting negotiations.

No matter your reason for having a non-disclosure agreement, it’s best to have a business lawyer draft the document. 

NDAs are legally binding documents, and it’s best to cover all your legal bases so that your NDA does exactly what it should. Part of the agreement should also contain the terms for enforcing it or what happens if one party violates it. 

At Woods Lonergan, we can help you create or revise your non-disclosure agreements. To learn more, reach out to our experienced NYC business attorneys.