When Should I Use a Non-Disclosure Agreement (NDA)?

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Table of Contents

• What Is an NDA?
• When Will I Need to Use an NDA?
• What Does an NDA Protect?
• Key Takeaways

Within business relationships, you may need to use non-disclosure agreements (NDAs) to ensure that certain information you share does not become public. Some perceive that wanting another party to sign an NDA is overprotective. But, not having an NDA can be reckless. NDAs are common, particularly in the startup world where businesses have new ideas and are looking for the right people to work with. This article sets out when you will need to use an NDAs and what you can protect with one.

What Is an NDA?

The purpose of an NDA is to protect any confidential information that you disclose. As they are typically only used for the protection of confidential information, you will usually need to use one when negotiating a contract.

When Will I Need to Use an NDA?

Below are some common situations where you might need, and might not need to use an NDA.

Finding a Service Provider

Many startups want to take the time to find the right service providers. Service providers will include:

• developers;
• marketing and public relations professionals; and 
• designers.

Here, you will need to discuss your ideas with these professionals before choosing who to engage. This will be a good time to use an NDA.

Entering Into a Business Relationship

If you have created a product and are looking to sell it to another business, you may need an NDA while you are negotiating the deal.

Getting Feedback

After developing a product, you may wish to run beta testing and gather feedback from your network or those in your industry. 

Bringing on an Employee or Co-founder

In the early stages of setting up a startup and looking for the right people to bring on board, you might need to share a lot about your business’: 

• plans; 
• financials;
• business models; and 
• products.

Here, you may need the other people to sign an NDA to ensure that they do not misuse your startup’s confidential information. This way, you will be able to talk openly about your company while searching for the right employee or co-founder. After you have chosen to take them on board, they can enter into an official employment agreement, which should have a confidentiality clause.

Pitching to Investors

If your business is looking for investment, you will likely reveal confidential business information when pitching your company. However, you may need to be cautious in insisting on the use of an NDA, particularly with venture capital firms or institutional investors. 

What Does an NDA Protect?

One of the main advantages of an NDA is that they can be flexible to suit the needs of your business. An NDA allows you to define what ‘confidential information‘ is, which may cover virtually anything. Your NDA should be as accurate or as broad as possible about what information the other party cannot disclose.

An NDA can protect your: 

• ideas;
• products; 
• app functionality;
• designs;
• source code;
• plans;
• business model;
• records;
• recipes; and 
• any other commercially sensitive documentation.

You should also clearly set out what the purpose of the NDA is. This is because the party receiving the information will only be able to use the confidential information you provide to them for the purpose. 

Additionally, you should set time limits for how long the information must remain confidential. You should also detail the consequences if the other party breaches the NDA, like compensation or a court order to stop using the information.

Key Takeaways

You can use an NDA to protect your business’ confidential information. This will be really necessary when working with third parties, like contractors or developers. If you fail to use an NDA when you need it, you could run the risk of having your business plans stolen. If you have any questions about obtaining an NDA, call LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.