NDA's & Why We Need Them

An NDA - a Non Disclosure Agreement - is a legal agreement that prohibits a person that receives confidential information - from sharing that information for a specified period of time or from using such information other than in connection with the defined purpose of the engagement.

Businesses should take extreme care to define and explain what type of information will constitute confidential information under an NDA. An NDA should also specify the time period during which the parties must protect the confidentiality of the information.

NDAs are usually customized to fit the circumstances of the transaction and who will be sharing the information. As an example, an NDA that is initiated for the purposes of a potential M&A transaction will require different provisions than an NDA for an employee or an NDA entered into in connection with discussions with a potential investor or vendor. Your Mutual Growth Broker can help you to determine if an NDA is necessary and will refer you to an attorney if needed. Contact MG@TheMutualGrowth.com

In addition, if only one party will be sharing its confidential information then a one-way or unilateral NDA protecting only the disclosing party’s confidential information would be appropriate. By contrast, if both parties to the NDA will be sharing information then a mutual or, in the case of more than two parties, multi-party NDA would be needed in order to ensure all of the shared information is protected. 

In general, a company should execute an NDA before sharing any information the company would not want to become public or  used, except for the limited purpose for which that information has been disclosed.

Some scenarios in which a company may want to execute an NDA include: presenting the company’s business model before an investor group for potential funding, or contracting with a vendor or contractor to develop, manufacture or distribute some element of a company’s product. Companies are also advised to execute an NDA prior to exploring potential strategic or exit transactions such as an M&A deal, joint venture or partnership.

Even though many companies often don't enforce an NDA, it is an appropriate avenue for showing the other party that the information or goods could cause harm if lost, shared or exploited, so please keep them secret. It effectively becomes a tool for clear communication and should be used to set expectations about what’s important to your company.