Confidentiality (non-disclosure) agreements can be a very important part of many transactions and professional relationships. The trick is to know when you need one, and to know under what circumstances it is appropriate to request that one be signed or to sign one yourself.
For instance, don’t expect to get one signed by a potential investor who may be looking at many other companies to invest in. This is especially true for venture capitalists. This is because at any given moment a VC is likely looking at three or four similar deals and they don’t want to be accused of stealing ideas if they happen to fund another similar company. But, let’s not focus on what venture capitalists do or don’t do because that isn’t at all relevant to 99.9% of business owners.
Confidentiality / non-disclosure agreements are needed when there is a need to keep information confidential. Therefore, if the information is already public, or will be soon, it’s probably not necessary. Additionally, sometimes NDA’s can be a barrier to getting deals done, and so it is best to weigh whether or not it is necessary and worth an inconvenience.
However, many times, NDAs are a necessity. For instance, in acquisitions, NDA’s are almost always mandatory because if the deal falls apart and ultimately doesn’t happen, both parties (the seller and buyer) are left in a position where they have sensitive information regarding the other. Furthermore, its typically one of the few legally binding provisions in a Letter of Intent (“LOI”) other than location of jurisdiction for any legal issues and breakup fees. In an acquisition, both buyer and seller should be aligned in their desire to have a comprehensive and strong confidentiality agreement since both parties benefit.
Another circumstance where having an NDA is necessary is the employee/employer relationship where the employer needs to protect certain confidential information from leaving the workplace. Employers want to protect their client lists, the terms of their deals and contracts with clients and vendors, their marketing and internal processes.
Another classic example is when companies are sharing information or trade secrets as a part of their business relationship. In this circumstance, NDAs are standard. The important thing to remember is that sometimes NDAs can impede business deals and are not worth the inconvenience. However, there are plenty of times when they are necessary to protect your confidential information.
What should your non-disclosure agreement include?
In order to be enforceable, NDAs should be drafted carefully, covering only what needs to be covered. An attorney should communicate with you in detail about exactly what information needs to be protected because the biggest way to end up with an unenforceable NDA is to draft it too broadly. Courts will enforce the NDA if it is narrowly tailored to cover only confidential information and not overly restrictive. The types of information typically covered in an NDA are business strategies, internal studies or analysis, internal processes and procedures, customer lists, proposals, and marketing strategies.
An attorney at Wick Law can help you determine when an NDA is necessary and make sure that it is drafted in a manner that is enforceable in court.
Wick Law, LLC is a small business legal practice, representing owners, investors, and entrepreneurs in all aspects of commercial, corporate, and business law, estate planning, contracts and negotiations, business litigation, and real estate. For more information: Contact 614-572-6366, visit www.mwicklaw.com, or email us at firstname.lastname@example.org. Wick Law, LLC is located in Columbus, Ohio.
(Materials in this article have been prepared by Wick Law, LLC for general informational purposes only. This list is for educational purposes and is not to be considered exhaustive. More items could be added to this checklist based upon the type of transaction or industry standards. These materials do not, and are not intended to, constitute legal advice. The information provided is not privileged and does not create an attorney-client relationship with Wick Law, LLC or any of the firm’s lawyers. This checklist is not an offer to represent you. You should not act, or refrain from acting, based upon any information in this checklist. Wick Law, LLC maintains offices in Columbus, Ohio, and has lawyers licensed to practice in Ohio and in the United States District Court, Southern District of Ohio. The firm does not intend to practice law in any jurisdiction where the firm is not licensed.)