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Is a Non-Disclosure Agreement really that Important?

Non-Disclosure Agreement

A Non-Disclosure Agreement, also known as a Confidentiality Agreement (“NDA”), is a business’s front line of defence to ensure the protection of all information considered confidential.

An NDA can be described as a written agreement entered into between the disclosing party and the receiving party, on the understanding that any information which is disclosed will remain protected and be treated in the strictest confidence and only be used for the intended/permitted purpose.

In essence, the purpose of an NDA is to ensure that the disclosing party’s confidential information will not be disclosed to any third parties by the receiving party.

What information will be considered confidential and how would an NDA assist?

Confidential information is anything that the disclosing party considers to be proprietary, sensitive information that will not ordinarily be available in the public domain, Intellectual property, formulas and business procedures and processes.

Business owners may often be required to share sensitive information with outside parties, particularly if they are a small business or startup.  Disclosing confidential information is necessary when the disclosing party is looking to make a pitch or seeking investment to find or secure a potential investor or partner.

Naturally, a potential investor or partner will want to understand what makes the business so unique for investment purposes.  The only way this can be achieved is by disclosing confidential information to show the company’s inner workings.  While this information is highly confidential, the disclosing party (at the back of its mind) may be reluctant to disclose the same. Still, at the same time, the disclosure thereof creates the opportunity for investment to take place.

By having the NDA, the disclosing party will be more at ease to disclose confidential information knowing that they are sufficiently protected by having legal recourse against the receiving party.  The receiving party will also be legally bound to secrecy for a specific period.

The NDA will come into play and assist by eliminating any potential risk and will boost trust and confidence between the parties to engage in open and frank discussions and negotiations, without the potential threat of having the confidential information spreading and falling into the hands of competitors.

All business owners will understand and appreciate how sensitive their company information is because it is the secret sauce that separates the company’s business from its competitors.

To this end, the following provisions set out below is what you can expect an NDA to contain:

  • Disclosure of Confidential Information;
  • Undertaking not to disclose and use Confidential Information;
  • Certain information which is not confidential;
  • Permitted Disclosures of Confidential Information;
  • Obligation of Receiving Party;
  • Damages;
  • Storage, Return and Retention of Confidential Information; and
  • No rights to the Confidential Information.

Key Takeaways

An NDA is not only a legally binding document but a useful tool for small businesses and startups to utilize to seek investment and find potential partners without the threat of having confidential information stolen or landing in the hands of competitors.

 

If you find yourself in a situation where you need to protect your company’s information and require an NDA in place, please do not hesitate to contact us. We can assist you in drafting the appropriate NDA tailored to your needs and requirements, as it is indeed an important agreement to have readily available.

 

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