Many businesses have information they want to remain confidential. But from time to time, information must be shared with outsiders - for example if you hire an independent contractor or enter into a joint venture with another business. In these cases, businesses use a non-disclosure agreement to protect their information.
What is a non-disclosure agreement?
A non-disclosure agreement (NDA) is a legal contract between several parties that establishes the confidentiality of shared knowledge or materials and restricts third party access. In lay terms, business associates use non-disclosure agreements to make sure neither party is allowed to speak about or divulge covered aspects of the agreement to anyone else.
When is a non-disclosure agreement appropriate for small businesses?
Non-disclosure agreements are generally used when two or more businesses or individuals chose to conduct some sort of business together or must share confidential information. In these cases it's important to make sure all privilege information is only shared with the appropriate people.
Are there different types of non-disclosure agreements?
There are several different types of non-disclosure agreements.
- In cases where one party discloses information to another party, a unilateral agreement is made. In these “one-way” agreements, the receiving party must guarantee that they will protect all knowledge and information they are privileged to in there business operations. Unilateral agreements commonly are used when a businesses owner prepares to sell his business, and must disclose financial records to potential buyers.
- In cases where multiple parties are divulging knowledge or materials to one another, a mutual agreement is made. These agreements require all parties involved to protect the knowledge and information entrusted with them per the agreement. Mutual agreements are commonly made when businesses enter into some sort of joint venture.
What type of information can non-disclosure agreements cover?
Non-disclosure agreements are generally simple, straight-forward documents, several pages in length.
Non-disclosure agreements can cover any information, knowledge, or materials that are not publically or typically known. Generally, NDAs cover only information that is directly divulged from the involved parties, and do not prevent the sharing of information that was discovered from some outside means – even if that information would have otherwise been covered by the agreement. For example, if Business A and Business B enter into a mutual non-disclosure agreement and Business A discovers information about a particular product from Business C, than information is no longer considered confidential – regardless of it’s relation to Business B or the original agreement.
What information is required in a non-disclosure agreement?
A standard NDA includes the sensitive information to be disclosed, terms of the agreement – including the time period of the agreement’s legitimacy; exceptions, consequences and waivers that affect the agreement; and any other information vital to the agreement’s relevancy - and the signatures of all parties involved.
Non-disclosure agreement templates are widely available on the Internet. The following resources offer sample NDAs:
- SCORE’s Sample Non-Disclosure Agreement
- Harvard Business School’s Sample Non-Disclosure Agreement*
- SBA Non-Disclosure Agreement
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