Hiring an employee—or entering into some other type of business relationship with an individual or another company—often involves disclosing information that your business would like to keep private from the outside world. A nondisclosure agreement can help protect such sensitive information.
A nondisclosure agreement, or NDA—sometimes called a confidentiality agreement, secrecy agreement, or proprietary information agreement—is a legal document that prohibits the disclosure of certain types of information. An NDA can be used between individuals, between a business entity and an individual, or between business entities. If both parties will be disclosing confidential information, a mutual NDA will be used. If only one party will be disclosing sensitive information, a unilateral NDA will be used.
A nondisclosure agreement typically covers such things as customer and prospect lists, supplier information and pricing, trade secrets, intellectual property, product formulas and specifications, information about products in development, computer code, marketing and business plans, financial information, and contractual agreements with other companies.
Uses for a unilateral NDA
The most obvious use of a unilateral nondisclosure agreement is with employees. Even if your company doesn't have trade secrets or intellectual property, there are probably some types of information that you would like kept private. At a minimum, this likely involves customer lists, accounting records, and information about banking and other financial matters. If an employee may have access to such information, it would be a good idea to have them sign a unilateral NDA.
Many companies work with independent contractors, either instead of, or in addition to, employees. This may require the independent contractor to have access to the same type of sensitive business information that would be needed by an employee. An independent contractor unilateral nondisclosure agreement can be used in this situation, and is essentially the same as a unilateral NDA for an employee.
A unilateral NDA also may be used by a company that is seeking additional funding, either through a loan or some type of investment. Someone who is considering making a loan to the business may want access to certain financial information before making a loan commitment. A professional lender, such as a bank, may be bound by laws relating to banking and fiduciary relationships to keep information confidential. But, if you are seeking a loan from a relative, friend, or some other lender that is not subject to regulatory laws, a unilateral NDA is advisable.
If someone is considering becoming an investor—such as becoming a corporate shareholder, LLC member, or general or limited partner—they may want access to various types of confidential information in order to make their decision. This may go beyond the types of information typically sought by a lender. Here again, a unilateral NDA should be signed before any information is disclosed.
Creating a unilateral NDA
Understanding unilateral nondisclosure agreements is necessary in order to properly prepare and use them. Creating a unilateral NDA is not difficult. A standard unilateral nondisclosure agreement form can be used by most businesses.
Any NDA should be tailored to the needs of the particular business. Each company will have different types of confidential information to be protected. Also, for example, an employee unilateral NDA may be slightly different from an independent contractor unilateral nondisclosure agreement.
Protecting confidential information can be crucial to your company's future. If there is any possibility that sensitive information may be obtained and potentially disclosed by an employee, an independent contractor, or any other third party, you need to get a nondisclosure agreement signed.