Use Non-Disclosure Agreements (NDAs) or Confidentiality Agreements
Including a confidentiality clause in an employee or contractor’s agreement should provide businesses with adequate protection. Still, when hiring, managing, and promoting people, businesses can always use an additional protective document
, such as a Non-Disclosure Agreement (NDA)
or Confidentiality Agreement
, to further safeguard sensitive information.
These agreements require buyers to keep the information they learn during negotiations private. They also outline the repercussions of breaching confidentiality.
Besides employees and contractors, businesses sometimes have to share confidential information with other external parties. Businesses can use NDAs and Confidentiality Agreements in these situations too. Let’s examine two examples:
Example #1: Selling a business
Any prospective buyer of a business will need to review confidential information such as financial accounts and customer lists before committing to the purchase. This process is known as due diligence
The business owner’s interests may conflict with the buyer’s, as they likely won’t want to divulge sensitive information unless they are reasonably sure the sale will proceed. This problem is solved by having the prospective buyer sign a Confidentiality Agreement or NDA followed by a Letter of Intent
By signing a Confidentiality Agreement or NDA, the buyer is bound not to share or misuse any information obtained during the transaction's due diligence and negotiation phases.
The Letter of Intent is a non-binding statement of both parties that they will negotiate in good faith toward completing the sale and purchase of the business. When negotiating is complete, the parties will agree to the final terms in a Purchase of Business Agreement
When a business owner is selling, they may be concerned about their existing staff and customers finding out about the sale prematurely. If employees or customers find out too early or learn sensitive details about the sale, they could be thrown off guard, negatively affecting the business. Therefore, an NDA or Confidentiality Agreement could be useful.
Example #2: Seeking investments
Sharing such things could be unnerving for an entrepreneur, as uninterested investors could share or steal ideas and information. This is why it’s essential to use an NDA or Confidentiality Agreement before disclosing anything.
Regarding inventions, it’s very similar. If an inventor hasn’t patented their invention yet and is seeking investments or having their invention evaluated, an NDA or Confidentiality Agreement can help protect their intellectual property