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Understanding non-disclosure agreements

A non-disclosure agreement, sometimes shortened to “NDA,” is something your business may want to consider when sharing proprietary information with a potential buyer, investor or third-party contractor. NDAs vary in terms, but, essentially, this document protects your ideas.

When a non-disclosure agreement is a good idea

Anytime you are sharing valuable information that could be used by another party for profit, it makes sense to have a confidentiality agreement in place. Taking legal action to prevent theft may seem extreme but remember that the terms can vary in intensity. Smart businesspeople plan for every possibility.

What are the elements of a successful NDA?

Non-disclosure agreements can vary by scenario, but every confidentiality agreement should include the following:

  • Identification of the disclosing party and the recipient party: Who has the information now and who will they be imparting knowledge to?
  • Definition of the terms: What is confidential and what is basic knowledge for this project? Is the confidential information always going to be conveyed in writing or will there be a verbal component?
  • Scope of the obligation: A non-disclosure agreement includes two parts. The receiving party agrees to keep the information private and not to use it to their own benefit.
  • Exclusions from confidentiality. What are the exceptions?
  • The timeframe of the agreement. It is best to set a time frame for the confidentiality of the information to further define the terms. You will likely have difficulty getting someone to sign off to keeping quiet forever.

Protecting your business is good business. Many people make the mistake of assuming non-disclosure agreements only matter in intellectual property. As you advance your new business idea, technology or invention, consider whether a confidentiality agreement makes sense as part of your onboarding paperwork.