All businesses must safeguard sensitive information from their competitors. One tool that business owners can use to protect their valuable secrets is a non-disclosure agreement.
However, an NDA will only be effective if it contains certain key elements. That is why careful drafting of the document is so important.
Definition of confidential information
Both parties must understand the boundaries of the agreement, so be sure to clearly outline what constitutes confidential information. Use lots of detail when describing the types of information that you wish to remain confidential.
Obligations of the receiving party
You must also specify the responsibilities of the party receiving the confidential information. This includes a commitment not to disclose, reproduce or use the information for any purpose other than the agreed-upon one.
Purpose of disclosure
Next, state the reason for sharing the confidential information. Defining the purpose ensures that the information is only applicable to the intended use and prevents any misunderstandings down the line.
Exclusions from confidentiality
You should also list any information that is exempt from the confidentiality obligations. This could include information already known to the receiving party, publicly available information or data obtained from a third party.
Duration of confidentiality
Solid NDAs include a time frame during which the confidentiality obligations are in effect. This could be a set number of years or until a specific event occurs.
Permitted disclosures
It also helps to outline situations that allow the receiving party to disclose the confidential information. This could include disclosures required by law or with the written consent of the disclosing party.
Return or destruction of information
Finally, include a provision for the return or destruction of confidential information after the conclusion of the agreement. This helps prevent any accidental or intentional misuse of the information once the business relationship concludes.
As reported by the Chamber of Commerce, only half of new businesses remain open after the first five years of operation. While there is no telling what the future might hold, a good NDA can increase your chance of success.