5 Situations That Require a Non-Disclosure Agreement
An NDA is your basic protection whenever you need to trust someone with valuable information about your business.
By Jonathan Long •
Opinions expressed by Entrepreneur contributors are their own.
There are several situations in business that will require you to share private and confidential information with another individual or company. In order to ensure that the other party respects the confidentiality, a non-disclosure agreement, or NDA, is often used.
When should you sign a NDA? Generally speaking, a NDA makes sense anytime you want to share something valuable about your business and make sure that the other party doesn't use it without your approval, or outright steal it. Here are five situations that require having a non-disclosure agreement in place.
1. Discussing the sale or licensing of a product or technology.
If you are entertaining the sale or licensing of a product or technology you own, you will want to prevent the potential purchaser from using your information/numbers as leverage in other negotiations.
While there is nothing stopping them from saying they have a lower offer somewhere else, you don't want them disclosing actual data or even the name of your company, especially to a competitor. A lot of financial and company information will exchange hands during discussions -- protect your sensitive company information with a NDA.
Related: Non-Disclosures Can Protect Your Idea, or Destroy It
2. When employees have access to confidential and proprietary information.
Think of how hard you have worked to build your business. Things like proprietary processes, supplier and manufacturing agreements, client lists, etc. all need to be protected. Make sure that your employees are prohibited from walking out and opening up a competing business using your valuable information.
Make sure you have an attorney draw up a nondisclosure agreement specifically for your needs. While there are a lot of generic NDA templates available online, the cost of a NDA specific to your needs and location can save you time and money in the event it needs to be enforced down the line.
Related: Why VCs Don't Sign NDAs and You Shouldn't Worry About It
3. Presenting an offer to a potential partner or investor.
Sometimes taking on a partner or an investor can breathe new life and opportunity into your business. During these talks, you are going to revealing a lot of sensitive information to the other party -- business financials, personal information, etc. In the event that you are talking with multiple potential partners or investors, make sure the information you share is protected.
Startups trying to raise funding from venture capital investors need to tread carefully when it comes to nondisclosure agreements. Most VCs will refuse to sign a NDA.
Related: Avoid These 6 Mistakes in Safeguarding Proprietary Information
4. Receiving services from a company that has access to sensitive information.
When my company takes on a new client we sign a NDA with them. We run paid campaigns for brands that are spending six-figures and more every month, so they are collecting a lot of data. This gives us access to email addresses, leads, customers, pixel data, etc. -- all very valuable stuff.
It truly amazes me that most brands never even bring up a NDA until we present it to them. "We always require marketing partners to sign a nondisclosure agreement prior to granting access to our website, email list, social media accounts and advertising accounts. We spend a lot of time and money to build these assets and a NDA helps to protect them," explains Cliff Sneider, CEO of Beds Online.
Related: Are You Using Non-Disclosure Agreements as Preventive Measures or Backup Plans?
5. Sharing business information with a prospective buyer.
If you ever decide to entertain buy-out or acquisition offers, you are going to have to show all of your cards -- every bit of financial and operations information will have to be divulged to the potential buyer when selling your business.
Always have a NDA in place when sharing this much information about your business -- you never know who is serious and who is a tire kicker. Larger businesses entertaining a sale will typically use an experienced broker that will require proof of funds and the ability to close the deal before any information is released, along with a signed NDA. Smaller businesses might try to avoid the broker fee -- if you fall into this category make sure you are protected.
