WHEN TO USE A NON-DISCLOSURE AGREEMENT

Introduction

Ever heard the saying ‘three may keep a secret if two of them are dead’? I believe that if you want to keep information secret, it’s best not to share it with anyone because once you disclose it to someone, it’s no longer secret. I’m sure this resonates with you as well?

However, there are circumstances, especially during business transactions where there may be a need to disclose sensitive information. In such situations, a Non-Disclosure Agreement (NDA) is recommended.

 

What is a Non-Disclosure Agreement (NDA)?

An NDA is a legal document in which one or more parties agree not to share confidential information which has been disclosed between them in the course of doing business with each other. Like other agreements, a non-disclosure agreement comes into effect after it has been signed by both parties.

1. Ensure you trust whoever you are disclosing confidential information to. Verify that they are the               right persons/representatives to receive such information.

               2. An NDA should be signed before the information in question is disclosed.

 

What happens if you breach the terms of an NDA?

A person who violates the terms of an NDA will be entitled to the penalties provided in the contract. Where it is not provided in the contract, an aggrieved person may seek remedy in court for either payment of damages or injunctive relief, etc.

 

How long does an NDA last?    

Depending on the nature of the transaction and what is provided in the signed agreement, an NDA could last for two or more years. It is, however advisable that the duration isn’t too short or too long thereby making it an obligation to last in perpetuity.

 

Transactions in which an NDA might be relevant

This is not an exhaustive list and that is why we encourage you to involve your lawyer during transactions to enable them to know whether or not an NDA would be appropriate.

  1. When an employer/employee relationship is about to be formed, and such an employee is likely to have access to confidential information in the course of employment.
  2. When an investor joins a company
  3. When you are about to share business information with a potential buyer of the business. Such transactions always involve disclosing every information about the business to enable the buyer to make an informed decision.
  4. When you are about to disclose a new product, invention or technology to a potential buyer.
  5. Before a film producer shares his/her script with a potential investor(s) etc.

 

Seeking funds from a potential investor? Note this!  

When it comes to seeking funds from investors, asking potential investors to sign a non-disclosure         agreement before making a pitch may certainly not be in your best interest, at least not at that stage. This is because there are other businesses with similar ideas who might pitch to the same investor, it would therefore be risky for such an investor who hasn’t decided to invest in your business to be bound by an NDA with you or your business.

The solution?

Explore the option of keeping sensitive aspects of your business operations or ideas as trade secrets while making a pitch. You mustn’t reveal everything about your business during a pitch, an investor’s interest during a pitch, is not in your trade secret, but whether your business is scalable and has the ability to generate a good return on his or her investment.

Should an investor decide to make a financial commitment to your business, you could present a Non- disclosure agreement to protect your trade secrets and other sensitive information.

 

Benefits of using a Non-disclosure agreement

  1. It gives you the confidence to disclose confidential information knowing that the receiving party cannot take advantage of such information without consequences.
  2. It protects you and your business even after the business transaction in which confidential information was disclosed is concluded.
  3. It reduces the risk of having your confidential information exploited by the receiving party.
  4. It saves time and cost of resolving a legal dispute which may occur in the event of a breach by the other party

 

Conclusion

With ever-increasing competition in today’s marketplace, having a non-disclosure agreement when transacting or collaborating with others is a necessity for your business. Need help with a non-disclosure agreement? Reach out to us HERE or fill out our form HERE and let’s get you sorted.

Cynthia Tishion
Cynthia is a lawyer and currently serves as Head of Corporate / Commercial Services at LEX – PRAXIS. With her passion for business and entrepreneurship, she is actively engaged in creating awareness on the legal aspect of businesses through various platforms such as writing, public speaking engagements.

Leave a Reply

Your email address will not be published.