The Nitty Gritty Of Non-Disclosure Agreements For Your Small Business
I’ve been asked to sign—and have asked others to sign—non-disclosure agreements in the course of doing business with others. But are they really necessary or simply a formality? Nellie Akalp, who is a small business expert and CEO of CorpNet (an online legal document filing service), recently wrote a post that covers why NDAs are important.
As solopreneurs and small business owners, it helps to know what legal documents might be in our best interest to secure when working with individuals and other companies. So, I asked Nellie if she’d share more about NDAs with my readers. I believe this Q&A can help answer some of the questions you might have on the topic.
What is the purpose of a non-disclosure agreement? How can it protect your business?
An NDA, or non-disclosure agreement, is a contract that binds someone to keep a secret. In the course of running your business, you may give contractors, vendors, or other business partners access to “behind the scenes” information that you’d prefer to keep private. An NDA creates a confidential relationship to prevent people from revealing any of that private information.
What circumstances dictate when a non-disclosure agreement is necessary?
This is a really important question, because small businesses often think that they don’t have any kind of “confidential” information. You may not be building rocket ships or safeguarding the recipe for Diet Coke, but you still have sensitive information that should stay in house. Examples are client information, your annual marketing strategy, financial data, or an analysis about your competitors. Let’s say you hire a contractor to help you with some client work in the background. You might not want them to contact your clients directly and disclose their role.
Who should you ask to sign your non-disclosure agreement? (i.e. vendors, project partners, etc.)
Anyone who might have access to sensitive information. Think about vendors, contractors, freelancers, and business partners. An NDA is such a standard procedure in business operations these days; most people won’t think twice if you ask them to sign one.
Are there any particular types of businesses that need a non-disclosure agreement more than others?
At what point during your business relationship should you ask for your non-disclosure agreement to be signed?
Great question! In most cases, the best time to introduce the NDA and have it signed is at the point of hiring the contractor or signing the vendor/contractor agreement. In some cases, you may need to reveal company information during the interview or exploration phase (meaning, before you decide to work with someone). In this case, you should have an NDA signed before giving anyone access to your information.
What are the key elements every non-disclosure agreement should include?
A typical NDA should include the following elements. First, it should specify what kind of information should be kept secret. Some people choose to keep this as broad as possible, but I think it’s a good idea to be specific about what can’t be disclosed. The reason for this is it makes sure the other party realizes what their obligations are and what information they need to keep private. In some cases, contractors or vendors may not even realize they shouldn’t talk about your new website or contact a client directly. Remember, the whole point of the NDA is to make sure your proprietary information stays private; spelling out the details will help ensure all parties are on the same page with how to handle information.
Other elements in an NDA should be the length of time that information should remain confidential, what happens if there’s a breach, and what method of resolution should be taken when there’s a breach (e.g. court or arbiter). You can find digital templates for NDAs online. Just search on Google for some samples; one example is Upcounsel.
What should you do if you discover someone violates the terms and conditions of your non-disclosure agreement?
Hopefully, your NDA specifies how disputes or breaches should be resolved. Many small businesses opt to use arbitration rather than the court system. And, while I believe that small business owners can handle much of their legal matters on their own today, this is one situation where you should retain an attorney to assist you with recovering any damages. If the other party is found guilty of breaching the contract, they can be held responsible to pay those attorney fees (note, this is another good point to spell out in the NDA).
Are there any other tips or advice you might share about non-disclosure agreements?
An NDA is a very easy legal document to produce and ask to have signed. As I mentioned before, it has become standard practice these days so there’s very little reason not to use an NDA with each new vendor/contractor/partner relationship. With that said, it’s important to realize that an NDA is just a document; it’s not a 100% guarantee that someone won’t misuse your confidential information. The bottom line is you need to use common sense and a little caution whenever sharing potentially sensitive details with others.
I hope this information has helped you better understand NDAs, and I thank Nellie for sharing her expertise. Of course, this post is not meant to provide legal guidance or serve as a substitution for professional counsel. Whenever creating or signing any legal document you should consider consulting a trusted legal professional for guidance. It’s always better to be safe than sorry!
Nellie Akalp is a serial entrepreneur, small business advocate, speaker and author. She is the founder & CEO of CorpNet.com, an online legal document filing service, where she helps entrepreneurs start, grow and maintain a business.