The Importance of an NDA

Non-disclosure agreements are extremely important for all types of business deals.  It is especially useful for small businesses and start-ups who will most likely outsource a lot of work to contractors or freelancers.  It can also be important if you plan on utilizing consultants to vet business ideas.

 

What is a Non-Disclosure Agreement?

A non-disclosure agreement, or NDA, is a legal contract between two parties that outlines confidential material, knowledge, or information that the parties wish to share with one-another for certain purposes, but wish to restrict other use or access to.  Basically, the parties agree to not disclose the information covered by the agreement.  An NDA creates a confidential agreement to protect confidential information or other non-public business information.

NDAs are commonly signed when two companies or individuals are considering doing business and need to share some type of confidential information to evaluate the potential business relationship.  They can also be used when outsourcing work – for example, a company can ask a freelance writer to sign an NDA that states that all information gathered while writing, and the writing itself, is confidential information until the company chooses to use it.

 

Common NDA Content

A basic non-disclosure agreement has the following content:

  • The parties involved
  • The definition of what is confidential – this can be very vague for the purpose of being all-inclusive
  • The disclosure period (i.e. 1 year or forever)
  • The term the contract is binding
  • Any exclusions from what must be kept confidential (i.e. materials already available to the public)
  • Any obligations to keep the information confidential
  • Any types of permissible disclosure, such as law enforcement

 

Why an NDA is Important

Given the above, an NDA is essential for businesses to maintain a competitive advantage.  If you are development a new product, writing content, or otherwise developing something for sale, you may need to contract out or hire someone to help.  Maybe it is a freelancer, a consultant, or the factory developing your prototype.  You don’t want the person or company to steal your product or other information and sell it themselves.  Imagine if Apple developed the iPhone, didn’t ask the manufacturer to sign an NDA, and the manufacturer made a generic iPhone and sold it themselves.  That would cost Apple billions in sales.  The same is true for any type of product development.

Also, once you have an NDA written, it is very easy to plugin new names and companies.  You typically only need to get an NDA written once, and you can use it over and over for new products and contractors.

Don’t underestimate the value of this important document when doing business.

 

About Mohit Tater

Mohit is the co-founder and editor of Entrepreneurship Life, a place where entrepreneurs, start-ups, and business owners can find wide ranging information, advice, resources, and tools for starting, running, and growing their businesses.

Comments

  1. This is a great point! How would you receommend drawing up the first NDA? Go professional with a lawyer or use a service like Legalzoom?

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