When is the Right Time to use a Non-Disclosure Agreement?
Nondisclosure agreements (NDAs) or confidentiality agreements have become nowadays a great tool business owners and companies use to protect their confidential information from being divulged. This legally binding document highlights the fact that you prioritize confidentiality in your business.
Nevertheless, sometimes it is not appropriate to ask for and use an NDA. For example, it is known that almost all Silicon Valley venture capitalists will disregard your request for a meeting if you dare ask to sign a nondisclosure agreement to do a pitch.
In addition, Asking to sign an NDA when it is not appropriate shows that you are kind of naïve and it may impede your credibility. Some investors and freelancers will prefer not to work with you if you ask for an NDA before final confirmation for starting your business together. Early request for NDA signing might cost you losing the interest of important investors.
So when is the right time to request for, use and sign an NDA?
In-depth business discussions (During business discussions)
It is always better to limit how much important information you want to share with another party until you know that you can trust them for not releasing any information and you are confident that you are taking the business relationship deeper.
If the other party is serious about working with you, he or she will easily agree on signing this legal agreement, especially if the terms are reasonable.
There are cases where both parties are sharing important information to them that they want the other to keep it secret and not release it. An NDA would come in handy in this case where it would protect not just one party’s confidentiality but also the other one. This kind of agreement is called a mutual, two-way NDA.
Because the nature of work with freelancers is not permanent, a business owner must be careful when sharing information with them. An NDA is not required but it surely protects you if you share important information to you with the freelancer you are hiring.
As an example of when you might need to share some information to the freelancer is sharing your customers list with a marketing specialist to help you grow your business. Sometimes your business requires from you to share some of you information with other parties that is why the need for nondisclosure agreements (NDAs) arises.
It is normal for new businesses and companies overall to request from their employees to sign an NDA before they begin employment.
Most employees do not refuse to sign it as most of them accept and do believe that that there is an ethical obligation to protect the secrets of the employer that they work for.
Licensing negotiations usually require sharing some confidential information, as you have to persuade the potential licensee of the benefits of your product or service and the reason why they would want to be part of it. Because of this matter, you should request an NDA before these negotiations begin.
Even if you allow any party to evaluate and supervise the quality of your work, you should ensure that this party signs an NDA, and will not be sharing or replicating your work.
Protecting intellectual property
NDAs are a crucial when you are willing to share trade secrets. If you want to keep your trade secret status, you need to protect the confidentiality of your trade secret.
On another note you should request NDAs if you are willing to apply for a patent for your invention later on. This type of agreement is used to supplement intellectual property rights.
Sale, merger and acquisition of business
Some crucial companies decisions such as considering the sale of your business, merging with another business or acquiring another business are likely to shake the stability of the business.
While negotiations are still going on and nothing is confirmed yet, NDAs can be used to ensure the privacy between the parties involved in the negotiation.
You should always be careful when sharing your information. However, in general, it is better to be safe than sorry. This explains why some legally binding documents such as an NDA exist.
To note that if the other party does not agree to sign the NDA, then you should limit the amount of important information shared with them in order to avoid any information release that you can not afford. On the other hand, if you are pitching in front of some venture capitalists who refuse to sign your NDA, you can always select what information you will put in your pitch.
By using general terms rather than revealing precise information, you are giving the investor an idea about the potential of your business without letting them delve into the details of how it will be executed.