Four Instances When Your Company Needs an NDA

Written by Christi Hayes and Fact Checked by The Law Dictionary Staff  

Non-disclosure agreements, also referred to as NDAs or confidentiality agreements, are legal contracts that require at least one party to that contract to keep confidential certain information shared with him or her by the other party or parties to that contract. In other words, an NDA allows businesses to keep important information secret so that competitors do not gain an unfair advantage over them. In a world where information and ideas can make or break a company, having an NDA often proves worthwhile. Here are four times when a business should consider asking for an NDA.

Employee agreements

Many companies ask employees to sign confidentiality agreements, especially if those employees have access to information or trade secrets that could give a competitor an unfair advantage. Such agreements ensure that employees won't try to sell a company's trade secrets to the highest bidder nor will they set up a competing business with information that that employee learned about from his or her former employer.

Pitching to investors

For companies that have a great idea for a new business opportunity, getting investors on board can provide the capital to make that idea a reality. However, when pitching to investors a company may have to reveal sensitive details about the big idea that is in the works. An NDA can prevent potential investors from taking that information and using it for their own or another business' profit.

Hiring another business

Businesses often need to buy services from other companies and these services may lead to trade secrets being exposed. For example, if a company requires maintenance on its computer or security systems, then the company carrying out that maintenance may be given access to valuable trade secrets. An NDA can prevent the company providing these services from sharing any confidential information it may come across in the course of carrying out its work.

Selling a business

Finally, for business owners who are looking to sell their business, they will likely have to provide access to confidential information to prospective serious buyers. By requiring prospective buyers to agree to an NDA beforehand, business owners ensure that a potential buyer does not run off and profit from valuable trade secrets without actually agreeing to purchase the business itself.

An NDA is a valuable tool for many business owners who want to ensure that their most valuable trade secrets are not simply available to the highest bidder. While NDAs are not appropriate in all situations involving confidential information, they do provide a measure of protection that can help businesses thrive.

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