WHY NDAs MATTER EVEN IN SMALL BUSINESSES
What is an NDA and how is it used?
NDAs or Non-Disclosure Agreements (also referred to by other names such as Confidentiality Agreements, and Confidentiality Disclosure Agreements) are legal documents which two or more people/organisations (known as parties) enter into in order to protect confidential information they are sharing.
Are there different types of NDA?
There are 2 basic types of NDA
- Mutual – this protects every party to the agreement
- One way or unilateral – this protects only one party and would be used, for example, if only one party is sharing information.
NDAs don’t have to be long or complicated but they do need to be clear about what is being agreed.
What does an NDA protect?
In short, NDAs protect confidential information/ business secrets – the sort of information you particularly don’t want people outsider the business, such as your competitors, to know.
Every business has confidential information, whether you are manufacturing a product, selling a service or whatever else your business may do. Although we often tend to associate NDAs as being important to huge businesses and large value deals, actually, I think they are even more important to small businesses where losing the control of proprietary information can be disastrous.
Imagine if you manufacture watches – what could happen if your competitors get to know all about how you make them and the costs involved? How would your customers feel if they knew your profit margin was 200%? What if you are a successful life coach and your competitors got to know your marketing strategy? At the very best they would gain a competitive advantage over you and at worst it could be the end of your business.
The problem is that you can’t always avoid disclosing your business information when you create an external working relationship. Having a business website designed, using an external marketing consultant, or thinking about a joint venture with someone will each require you to share some information that you will consider to be confidential. However you can take sensible steps to provide as much protection as you can and that’s where an NDA is important to every business.
How will an NDA protect my business?
(1) It’s clear, written evidence of what’s been agreed
An NDA is a formal legal document, an agreement/contract which binds the people/organisations who sign it. You can add as much protection as is needed but at the very least an NDA provides clear written evidence that the people/organisations have agreed
- to share information which is confidential
- to only share it for limited purposes (for example to discuss the possibility of a joint venture)
- who it can be shared with (for example, you may agree that a business can share confidential information with its employees but your NDA can make sure that the business is responsible if the employees then go on to share the information elsewhere)
- that if anyone uses the information in a way other than has been agreed there will be ramifications such as compensation (money/damages) to cover losses (for example loss of profit) or even being able to stop the person sharing the information (such as by taking out an injunction)
(2) Taking it seriously
Most people/organisations understand the importance a formal written legal document, will usually take the time to read and understand their obligations and responsibilities and generally only enter into one if they are serious.
It’s much less easy to say you misunderstood something that you’ve signed as having read and understood.
(3) Enables you to take action more easily if the NDA is breached
The NDA provides clear written evidence of what’s been agreed which makes it much easier to take action against the people/organisations who disclose confidential information.
Without that written evidence you will be relying on what was said (oral evidence) which is much less reliable and potentially open to misunderstandings and untruths.
Confidential information can be the very life-blood in a business and keeping it safe can be the difference between failure and success. NDAs protect that confidential information, meaning that a business can freely share confidential information as and when it needs to.
Sharing your business secrets without having an NDA is a little bit like holding a confidential meeting in the middle of a crowded restaurant where everyone can hear – you just wouldn’t.