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What is a confidentiality agreement or ‘NDA’ and when might a small business use one?

August 4, 2015

Picture the scene. You’ve spent years developing an amazing new product, the likes of which has never been seen before.

It will truly revolutionise the market and give your competitors many sleepless nights of agonising worry.

But it all depends on you shocking the world by announcing your new product at the annual trade fair. If word gets out before, it will ruin all your hard work and give your competitors a head start.

You’ve designed all your marketing materials in-house in total “hush hush” secrecy and now passed the files to your local printer so he can produce 10,000 brochures… and that’s where it all goes wrong.

See, the printer thinks your product is amazing and innocently emails the brochure design to a friend… who also passes it to a friend… who thinks his mate would be interested… whose best buddy is a direct competitor of yours… whoops!

And this is why a legal document called a confidentiality agreement – also known as a Non-Disclosure Agreement (NDA) – exists.

The non-disclosure agreement

Such a document will give you confidence that the outside help you bring in to work on a new unique product or service won’t screw you over. Because if they do, you’ll be able to take legal action against them. Better still, if you think they’re about to do something that will expose your secrets, your signed NDA will make it easier to obtain an injunction to stop them.

The NDA is nothing more exciting than a legal agreement between you and someone else. It is a legal contract which limits what they can do with the information.

You ask them to sign it before you tell them anything about your idea. In the example at the beginning of this article, you would ask the printer to sign the NDA on behalf of their business and employees.

The NDA would state that they were specifically banned from passing the brochure designs or any of the finished printed brochures to anyone other than yourself. It would be the printer’s duty to ensure their employees acted within the guidelines of the NDA.

When to use an NDA

NDAs are typically used with suppliers and business partners, as well as advisers and key clients. Journalists are sometimes asked to sign an NDA before being given access to a product still in development (so they can write about the product in advance and have a story ready to be published the day it is officially launched).

This sounds obvious, but to get a valid NDA for something it needs to be a secret. You can’t guard something people already know! Of course there are varying degrees of secrecy… people may know you are developing a new product, but they may not know the exact details.

Typically NDAs cover a specific piece of information, maybe a technical drawing; a formula for something or a specific process. It can also be a plan or a report.

NDAs are often frequently used by businesses who are trying to raise funding from outside investors. If you feel that you will be revealing confidential information or valuable intellectual property when pitching to investors you should ask them to sign an NDA. Most investors will oblige, but some will refuse to as it may restrict their ability to discuss potential investments with other investee companies.

Even though they can be costly to enforce, many business owners like to have an NDA in place as it acts as a firm reminder to the other parties that they are privvy to confidential information that is not to be divulged at all.

It’s not unknown for employees to be asked to sign an NDA before being given access to confidential customer or product databases. It gives your business a legal solution to them walking out of the door with your contacts and straight over the road to your competitor.

How to obtain an NDA template

So, how do you get an NDA? As with any legal document, it’s highly inadvisable to try to do it yourself. There are two options open to you: buy one on the internet, or pay a small business solicitor to draw one up for your specific needs.

Getting a standard NDA off the internet and filling in the blanks is cheap but could potentially leave you at risk. For example if the definitions of what is secret are not clearly spelled out, they may become a sticking point in the event of a breach.

You can buy and download an NDA template for a few pounds at legal document sites like Compact Law and Simply Docs. A simple search on Google will reveal dozens more sources.

More help on the legal side of running a business

For more guidance on legal issues, try some of ByteStart’s other guides;

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