Whether you’re a business owner, entrepreneur, or freelancer, understanding non-disclosure agreements is vital to safeguarding intellectual property, trade secrets, and other proprietary information. Let’s take a look at how NDAs work, and how Ownr can help you create custom, effective legal documents at a fraction of the cost of a lawyer.
What is an NDA?
A non-disclosure agreement, or NDA as it’s also known, is a legally binding contract (or part of a larger contract) between two parties that establishes the confidentiality of information. The purpose of an NDA is to prohibit the signed parties from discussing the defined confidential information with any non-authorized individuals.
For small business owners, NDAs are helpful for protecting trade secrets, intellectual property, or any other proprietary information wherein its confidentiality is essential to the company’s success.
NDAs are commonplace in business and may also be known by a few other names:
- Confidentiality agreement
- Secrecy agreement
- Proprietary information agreement
Advantages of an NDA
For business owners and employers, there are many advantages to using NDAs. The primary benefit is to protect valuable information that gives your business a competitive edge. Some additional reasons that NDAs can be positive for your business are:
- They protect business plans and trade secrets: If your business relies on proprietary technology, software, or other intellectual property to make a profit, NDAs are absolutely essential to protect them from being shared with others by company employees. They can also ensure intellectual property created by employees is owned by the company, not the individual.
- Allow you to disclose confidential information during business negotiations: Mutual NDAs can help protect the interests, business plans, and other confidential information of two or more parties while negotiations take place. We’ll expand on the types of NDAs more below.
- They protect employee and customer data: Maintaining the privacy of operating information can be important in business. NDAs can cover anything from supplier information to costs to customer lists.
- NDAs build trust in business partnerships: It can be a positive signal to other business partners that your company takes the protection of data seriously and may help with relationship building.
- You’ll have better legal protection if disputes arise: In the event that confidential information is leaked, it’s helpful to have legally binding documents to strengthen a potential legal case. Non-disclosure agreements provide a clear framework for the use of information so there is little room for misinterpretation. An NDA may also include the consequences for breaching it in order to discourage parties from doing so.
- NDAs are easy to create at a low cost: With Ownr, NDAs can be an easy low-cost solution to protecting data. You can create your own NDAs in our platform that are uniquely tailored to your business, at a much lower cost that going to a lawyer. Get started here.
Drawbacks of an NDA
In general, non-disclosure agreements offer many benefits, however, they also have negatives, particularly for the individual employee. Here are some things to consider before using NDAs for your business:
- Potential for misinterpretation if they lack clarity: When intellectual property and trade secrets that are essential to your business are at stake, you don’t want to risk misinterpretation of the language which can result in legal battles. Ensuring that your NDAs are iron-clad can require the costly input of a lawyer. Ownr can create tailored legal documents that keep your information safe.
- NDAs can be difficult to enforce: It may be difficult to identify a breach in an NDA (especially when there are multiple individuals with access to that information), and pursuing action can be time-consuming and costly.
- NDAs can provide a false sense of security: You may be tempted to share more information than is required when an NDA is in place, which could put your business at risk, if breached. Try to limit the information shared with each individual to strictly what is necessary to do business wherever possible.
- They may limit your ability to attract talent attraction: Some employees may mistrust NDAs and prefer to work for companies without the limitation of a non-disclosure agreement. In some cases, they may create tension or a lack of trust between employees and company management where individuals who prefer to maintain ownership of their intellectual property throughout their employment.
Requirements for an NDA in Canada
While an NDA should be customized to your business needs, some basic information is typically included:
- The parties involved (two or more).
- A description of the confidential information that is protected by the NDA. This information must be confidential (i.e., nothing that is already in the public domain) and it must not ask the parties to do anything against the law.
- The scope and terms of the agreement, including the length of time it is valid.
- Any exclusions or limitations.
Types of Non-Disclosure Agreements
Before you create an NDA to protect your information, you should choose the right type. Below are the most common types of NDAs available for Canadian businesses.
Mutual Agreement
A mutual NDA is when two or more parties will each disclose confidential information that is protected through the agreement; therefore it is beneficial to each party. This can be especially useful for business negotiations, partnerships or merger discussions where information needs to be shared before reaching contractual agreements. Still, it is in the interest of each party to maintain confidentiality whether or not they close the business deal.
Non-Mutual Agreement
In a non-mutual agreement, one party is sharing sensitive information that needs to be protected through certain limitations by the agreement. This is the most common type of agreement that employees of a company sign before starting employment and accessing confidential information and intellectual property. Essentially, it’s a “one-way” agreement where a party shares information that the other cannot disclose.
Read on for more information on the types of NDAs, plus Ownr’s helpful tips for using them.
Exclusions to NDAs
Depending on the information you are trying to protect, you may wish to include all the information that the NDA protects, as well as an outline of the exclusions covering what is not protected by the agreement.
In other cases, it may be more appropriate to have a blanket agreement that lists just the exclusions. This may be helpful in limiting potential exceptions, for example, if the company develops new intellectual property that was not explicitly covered in the initial NDA.
Example of when to use an NDA
It is always best to employ NDAs early in business negotiations so that information is protected and businesses can have open negotiations without the risk of information being released to the public.
Consider the use of an NDAs for:
- Hiring employees or contractors: It is a common practice to include an NDA as part of an employment contract to protect the interests of the company.
- Partnerships, collaborations, and investor opportunities: When discussing trade secrets, and operational and financial information with investors or prospective partners, it’s a good idea to use an NDA prior to beginning those negotiations.
- Marketing releases: Businesses may require NDAs for employees, contractors, or marketing partners before sharing information about upcoming business plans or product releases.
Final thoughts
If you think your business dealings would benefit from an NDA to protect sensitive information, we recommend making use of one early to protect your business and allow open conversation. A mutual NDA is beneficial to both parties and can inspire trust and maximize the protection for all parties involved.
What is an NDA FAQ
What is the purpose of an NDA?
The purpose of a non-disclosure agreement is to protect a business’s confidential information so that it can maintain a competitive advantage. This information may include operational, financial, marketing, employee, or customer information and any trade secrets or intellectual property.
What does an NDA protect against?
Each NDA will have specific terms of what it protects but, generally, they protect against the distribution of confidential information to any non-authorized party. Simply put, they keep your important business secrets from becoming public information.
What happens when you break an NDA?
Breach of a non-disclosure agreement can mean legal action, termination of employment and, in some cases, criminal charges. You can choose to include the action taken against a party for breaching the contract within the terms of the NDA so the signing parties know what to expect and to discourage breaking it.
This article offers general information only, is current as of the date of publication, and is not intended as legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. While the information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Ventures Inc. or its affiliates.