Why your business needs a non-disclosure agreement

Coming up with a new idea or product for a business can be an exciting development that urges you to share your thoughts with others - typically anyone who can help you put the wheels in motion when taking that thought and creating it in the real world.

However, in order to share your idea, it is advisable to protect your business by first making a non-disclosure agreement (NDA).

NDAs are also vital when you're in talks with a third party about an upcoming project, but want to keep your company information private.

What is a non-disclosure agreement?

This is a legal contract between you and another party prohibiting them from disclosing your proposals or knowledge to a third party. Among the provisions it covers are trade secrets, business plans, know-how, product information, and details pertaining to customers and suppliers.

Effectively, you are agreeing to give another party certain information but in turn, they agree not to pass it on or disclose it.

When an NDA is useful

An instance where a non-disclosure agreement might be relevant could be when you need to get an estimate from a manufacturer regarding the cost of developing a new product. An NDA would allow you to give them the details they need to tally this cost but prevents them from telling a competitor what you are planning.

An NDA can also be created should you be discussing a joint venture or project with a third party and you want the information you provide to remain confidential should the proposed project fall through.

An obstacle to a NDA is information passed on to public bodies, who under the Freedom of Information Act, might be forced to make public your proposals if requested.

When approaching another party with your ideas, have it clear in your mind precisely what information you are and are not prepared to discuss. This helps to maintain privacy and protect copyright.

NDA v confidentiality agreement

In terms of employee/employer relations, most employees are obligated not to make disclosures about trade secrets in a way that could damage the employer. 

However, it could be beneficial for employers to draw up an agreement to ensure that their employee understands what is and is not acceptable to disclose. Lawpack's confidentiality agreement template can help you to do this.

Why you should draw up a NDA

There are many reasons for drawing up a non-disclosure agreement, with the most obvious being that it prevents trade secrets from becoming industry or public knowledge.

However, another benefit of having a written agreement is that if a dispute does arise, you have physical evidence to prove the other party agreed not to disclose your knowledge. This would hold up far better in a court of law than you word against theirs.

Moreover, if the information you pass on to another party implies that they will have to share it with others on a need-to-know basis, the NDA prevents them from spreading it beyond that boundary.

Upon termination of the non-disclosure agreement, both parties involved are obliged to either return or destroy the other's information. This again ensures that trade secrets are not leaked to a wider audience.

The NDA also includes indemnity, a legally binding promise from the other party regarding losses incurred upon breach of the agreement.

You will retain all rights to the information under an NDA and the other party will have no rights to the information disclosed under the terms of the agreement.

The other party can only use the information under 'permitted purpose', which allows them to use it merely to gauge how the proposal could impact them and whether or how they should take the idea further. It is worth reiterating here that it cannot be used for competitive purposes.

You can make a NDA easily with Lawpack's solicitor-drafted non-disclosure agreement template.

Published on: September 23, 2011

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