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November 09, 2021

When Should You Use an NDA?

When Should You Use an NDA?

You have a shiny new business idea that you’re excited to bring to life. Of course, you need help from partners, potential investors, and suppliers to make it happen — not to mention your team of employees and colleagues. 

With all these people involved in your precious new project, you need to ensure it won’t get stolen, leaked, or ruined. Unfortunately, the good ol’ days of sealing a business deal with a handshake and a prayer are over. You need an NDA, or a non-disclosure agreement.

If you’ve never used an NDA before, I’ve got you covered, friend. Let’s talk about what an NDA is, what it covers (besides your booty), when you should use one, and what you should do if someone refuses to sign it. 

What’s an NDA?

A non-disclosure agreement, or NDA, is a legal document that keeps sensitive, confidential information under wraps. That’s also why you might see an NDA referred to as a “confidentiality agreement” or a “confidentiality statement” in other legal docs.

An NDA can be mutual, where both parties agree to protect confidential information. You’d use a mutual NDA if you’re joining forces with another business and sharing proprietary information, for example.

On the other hand, an NDA can be unilateral, where only one party is disclosing the info. You’d use a unilateral NDA when hiring a new employee to protect your business’s non-public information, like client lists, designs, trade secrets, and all that fun stuff.

What an NDA includes

Just because an NDA is a legally binding document doesn’t mean it has to be hundreds of pages long! A solid NDA can be short and still include the necessary elements, like:

  • Confidential information specific to your biz
  • The obligations of the parties involved, like how long a person has to keep the information confidential and how the information can be used
  • What happens if a partnership ends or an employee leaves 
  • What happens if someone breaks the NDA

What an NDA covers

What’s this “sensitive, confidential information” that an NDA covers, exactly? In a nutshell, an NDA protects any business information that’s not known to the general public. That might include:

  • Business plans
  • Business records
  • Contracts
  • Product ideas
  • Product designs
  • Secret recipes or formulas
  • Contact info for clients or partners
  • Financial info
  • Marketing research
  • Sales leads

NDAs don’t cover everything; records like information filed with the SEC or your company’s business address are general public knowledge. But basically, if you’d hate to see private information leaked to your customers or competitors, you probably want it carefully guarded in an NDA. 

Psst...if writing out the perfect NDA for your biz sounds too scary, our NDA template can do all the heavy lifting for you!

When you need an NDA

You might think that asking a new hire or partner to sign an NDA is too formal or too much of a headache. Here are some handy questions that you can ask yourself to decide whether you need an NDA.

  • Are you hiring a new employee or independent contractor?
  • Are you forging a new partnership with another entity?
  • Are you working with another party (like a supplier, vendor, creditor, or advisor) to build a brand new product or launch a new service?
  • Have you spent a lot of time building your business and want it protected from thieves, blabbermouths, and jerks?

If you answered “yes” to any of the above, err on the side of caution and get yourself an NDA. Trust us. Also note that, if you’re working with a contractor, an NDA is not the same as a non-compete.

 

What if someone refuses to sign?

Asking someone to sign an NDA before they work with you is like saying, “Hey, you’re awesome, and I’m trusting you with the secrets of my business. Can we make it official?” So a refusal to sign may feel like they’re saying, “That’s cool and all, but no.” 

Someone may have a perfectly valid reason for refusing to sign — they need to protect their own business interests or ideas, for example. But that doesn’t mean you have to work with them.

 

Protect your biz

Whether you’re expanding your team or collaborating with someone new, an NDA is essential for protecting your business. An NDA outlines what confidential information you want kept secret, how it can be used by other parties, and what happens if your partnership or employee doesn’t work out...or if the NDA is broken. 

Wondering what other contracts you need for your biz? Check out Lawless to Flawless®. This super sweet, super affordable course will help you launch your business on a solid legal foundationandgrow and expand it when you’re ready. Learn more and join Lawless to Flawless® now!

 

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