Doing business in today’s world often necessitates sharing private and confidential information with other persons or companies. To make sure that the party receiving such information maintains confidentiality, a non-disclosure agreement, or “NDA”, is often used. When would an NDA come up? In general, an NDA makes sense any time you want to share information of value to your business. A well-crafted NDA can help to make sure that the other party doesn’t use or exploit that information for their own gain (or that of a competitor) without first getting your approval. While they are by no means the only scenarios that come up, three of the most common situations I see in my practice where an NDA is highly recommended include:
1. Sale or licensing of technology.
If you are considering the sale or licensing of technology or a specific product you own, it is recommended you utilize an NDA to deter the prospective buyer from using your information or figures as leverage in other negotiations. Because considerable financial and other information can arise or be exchanged during discussions, you do not want the receiving party to disclosing actual company information to third-parties, especially if that third-party is a competitor. An NDA can help to protect highly sensitive company information.
2. Negotiations over the sale of your business.
Perhaps you’ve been considering a buy-out or sale of your business. If so, be prepared to undergo the proverbial colonoscopy, I mean “due diligence”, involving release of all of your company’s financial and business information to the potential acquirer. Because you never can totally be sure until it is all over who is a bona fide buyer and who is simply kicking the tires, it is vitally important to have an NDA ready to go and in place prior to sharing such information about your business. Please please please do not just use something that the buyer’s attorney or your business broker came up with (although more sophisticated businesses and larger companies will usually engage an experienced broker that will look into the acquirer’s ability to close the deal before any information is released, along with a signed NDA. If you are a smaller business, though, you may be tempted to save the brokerage commission. While this is understandable, you should at least invest some amount in making sure your information is protected during negotiations–and continues to be protected if no deal occurs.
3. Vendors or other third-parties with access to sensitive information.
Considering bringing on a new vendor or services provider? Then you need to be thinking about having them sign an NDA. This is especially true if the vendor will have access to such valuable information as financial data, your website, customer data, leads, e-mail lists, social media accounts, etc., etc. A strong NDA lays out the parties’ expectations for how such information will be handled and what will happen to the vendor if an accidental or intentional disclosure takes place.
Ben Bhandhusavee is the Managing Attorney for BhandLaw, a Phoenix business and technology law firm that works with start-up companies, creative intellectual property matters, and complex business and technology transactions. Ben can be reached at (602) 678-2970 or by e-mail at firstname.lastname@example.org