Nondisclosure agreements are a really common tool for businesses when they're starting out. As you are working with others to help you get your business off the ground, you want to make sure that you are protecting the great ideas behind your business. Whether you are going to bring on an investor or work with a new software vendor, you don't want to expose your growing client list. You should be worried about what happens if that person you're working with just takes my information and goes and sells it to a competitor? These are the kinds of situations where we want to consider using a nondisclosure agreement.
What is a Nondisclosure Agreement?
A nondisclosure agreement usually comes up when you have two companies or individuals who want to do business together. One or both of them have private information, private data, and private systems, that they want to make sure stays private. So again, your client list, the processes you use that nobody else knows about. The point of the nondisclosure agreement is that it's going to keep all of that information that the two parties exchange private, so nobody discloses it to the outside world.
When Do I Need to Use a Nondisclosure Agreement?
If you're running a business and you're thinking about using a nondisclosure agreement, your next question to me is probably going to be when do I need to use it? Well, for example, if you're designing an app, and you want or design software and you want to bring on developers, a nondisclosure agreement can make sure they don't take your processes, all that code you've created, and then just use it with somebody else's app or software.
If you're going into a joint venture with another company and you're going to be sharing customer lists, you both want to have a nondisclosure agreement to make sure your customer list and their customer list are protected.
If you're hiring a new employee who's gonna have access to very sensitive information, again, like your customer list, and you're concerned that they may then work in sales for you for a couple of months and then just take the list and go somewhere else, you want to use a nondisclosure agreement.
If you're bringing on investors, investors may want to see your corporate records, they may want to see all of these assets before they'll invest. You want to make sure you get a nondisclosure agreement from them so that they don't go telling your competitors all of the assets that your company has, or more importantly, looks at those assets and say, "You know what, there's a better deal over here on this other company, let's invest with them and bring what we can over to our new investment."
What's in a Nondisclosure Agreement
If you've never seen a nondisclosure agreement, it doesn't have to be 50, 60, 70 pages long. A lot of times, they are really no more than four to five pages. Using a shorter agreement helps to keep it very clear and concise so that everybody who signs it knows what's in it.
There are some common terms that you'll find in your agreement:
- Who are the parties ~ meaning who are the people that are bound by the agreement?
- What is the confidential information that's being protected?
- What isn't considered confidential? So if there are things that are publicly known, you can't try to make them confidential by using a nondisclosure agreement.
- What uses can the information be used for? If you're giving somebody your customer list, what are they allowed to do with it?
- What are the permitted uses and what are the non-permitted uses?
- How long does it last? The term of the contract, so we know how long that nondisclosure agreement will be in effect. You usually want to make sure it lasts beyond the end of your joint venture, the end of your dealings so that people are protecting the information further down the road for you.
And then there's going to be other basic miscellaneous provisions you find in other contracts, things like collection issues, attorneys fees, governing law, meaning what state you're not supposed agreement is governed by.
Do I Need a Nondisclosure Agreement?
Now, after thinking about this, you're probably asking yourself, do you need one? If you're in one of these situations, you'll probably want one:
- If you want to protect your company's information, you want to consider using one.
- You want a clear description of what's confidential and what's not when you're dealing with somebody. A nondisclosure agreement is a good way to go.
- You want to make sure that everybody understands what the consequences are for violating the nondisclosure agreement. In that case, the agreement has to be clear, and that's another reason to use it with your partners. So they know if they mess up if they disclose information. They're looking at serious penalties.
Another question people will often ask me is how much is this is going to cost? Well, it's going to depend on how long the agreement is that you're creating, how complex it has to be, but these don't have to be long, 50 Page complex contracts. We can often use a short nondisclosure agreement to make sure to protect you and your company.
Next Steps
This is not something you want to try to do yourself. You don't want to just download some agreement form you found online and hope that it works for your situation. Instead, work with a professional, work with an attorney who works in the space that can help you make sure to tailor your nondisclosure agreement to your situation. If you're going into a joint business venture in the agricultural world, getting an NDA from a website that deals with app developers with Apple is not going to be the best way to do it. Get something that relates to your particular industry. If you're not sure where to get started, or you want to take the next step, you can set up a Legal Strategy Session where we can have a quick call to go through what you need in your NDA and give you some next steps to get started.
