NDAs can be a confusing subject. However, they provide essential protections and outline terms of the business partnership. They protect both businesses and employees. Here’s everything you want to know about NDAs.
When Should I Use or Sign NDAs?
An NDA covers a situation when businesses must disclose confidential information. Often, they share this information for the purpose of collaboration.
A variety of different scenarios require NDAs:
- Presenting business ideas for collaboration
- Disclosing information for the purpose of buying or selling a business
- Allowing employees or contractors to access sensitive information that they need to do their job
If you’re trying to raise money for your startup, you probably won’t be able to leverage an NDA. Most investors won’t sign an agreement like that before learning about your business.
If no confidential information is going to be exchanged or if you suspect that an NDA is not required, something strange might be going on. It’s best to have a lawyer look over the document to see what the fine print says.
What Types of NDAs Exist?
There are basically two simple types of NDAs. A basic NDA is a non-mutual NDA, which means that only one party agrees to not share confidential information. This is standard when only one party will be sharing confidential info, like when you are selling your business or giving an employee access to records.
The other type of NDA is an mNDA, a mutual NDA that binds both parties. These are used in cases where confidential information is being exchanged on both sides, like in a business partnership.
What Does an NDA Usually Spell Out?
NDAs usually identify who both parties are and define what is considered confidential. They generally outline the obligations that the party receiving the confidential information has, and any exclusions to confidentiality. It also lays out how long the term of the agreement is.
If you’re signing an NDA, pay special attention to the scope of the information received. Generally NDAs will tell you that the only information that counts as confidential is information that wasn’t already known or couldn’t have been generally known. This protects you from legal action for using ideas or information that are related to the business but are not proprietary.
When you are drafting an NDA, you should make exclusions for information that is already known, publicly known, or disclosed with no duty of confidentiality. Limiting the scope of the NDA helps protect you in the case that you have to act on it in court to recover damages.
How Long Does an NDA Last?
It depends on the type of information that you will be releasing. Obviously, it’s a best case scenario for you as a business if the NDA has no definite end point. But many people signing NDAs will want there to be a definite end date so that it can’t be leveraged against them decades later. Additionally, most confidential information that is shared by businesses is only really relevant or confidential for a limited amount of time. Ideally, you have an NDA that covers that amount of time but doesn’t require indefinite protection.
Extra Stuff You’ll See in NDAs
If you’re an employer you can insert a clause that prevents a partner from soliciting employees or hiring them for a couple of years. This is helpful if you’re working with a potential competitor who may try to win over your best talent.
Right to injunction is also common in NDAs—this basically gives you the right to get a court order that can stop the other party from breaching the NDA.