Unless you want to be a solo artist, responsible for all aspects of your business (its supply chain, marketing, software development, providing funding etc.) forever, there will come a time when you’ll need to let others know about your idea or information about your business.
But, if you need to have more detailed conversations or don’t know the other party who you are sharing the information with, you should consider using a confidentiality agreement (also known as a non-disclosure agreement or NDA).
What is a confidentiality agreement?
A confidentiality agreement is a legal agreement entered into between parties which provides the party disclosing information with the ability to protect that information by restricting what the party receiving it can do with it. This can include restricting who the information can be shared with, the purpose that the information can be used for and the period of time over which it can be used.
Confidentiality agreements can be one-way, where only one party is sharing information; or mutual, where both parties (or more than two parties) share information with the other(s).
Confidentiality agreements will not cover information that is already known to the public or to the party who it is being shared with; or if it comes into their possession from another party (where that party has not breached legal obligations placed on it). Additionally, information that is required to be disclosed by law will not be protected.
When should I insist on one?
If it is absolutely necessary to share highly sensitive information with other parties (including your idea that is not yet protected by a patent or your business plans and finances) and you want to ensure that information is not made public then you should insist that anyone you share the information with signs a confidentiality agreement.
What are my key considerations when entering one?
The key factors to consider when entering into a confidentiality agreement are:
• Be clear about what you want the confidentiality agreement to cover – it may be broad covering all aspects of your business or it may be narrow to cover only a specific set of information.
• Be clear about what the information can be used for.
• Be clear about who can have access to the information – just the company itself and its employees or a wider group of people such as group companies or professional representatives of the company?
• How long do you want the information to be protected for? – some information will by its nature not require indefinite protection so consider this as it is usually easier to get a party to sign up where durations are limited.
• Have a clear process for requesting your information back at any time, including at the end of the agreement.
• Understand who you are sharing the information with – if a company is newly incorporated for instance it may not have any assets which will make suing them for breach of the agreement worthless. You may need to seek parent company guarantees to provide protection.
• What do you want to be the remedy if there is a breach of the agreement? For example, you may be entitled to a percentage of profits resulting from the misuse of the information.
What if the other party doesn’t want to sign one?
You may find that some parties will not agree to sign a confidentiality agreement. Investors will have multiple potential opportunities to explore and need to be able to have multiple conversations with different businesses. They don’t want to be held back from doing so by restrictive obligations. A confidentiality agreement is a legal document that needs to be reviewed and potentially negotiated, all of which takes time and money which an investor is unlikely to want to spend. You will need to consider whether the benefit of potential investment outweighs the risks of sharing the information and understand that investors are unlikely to breach a confidentiality obligation when doing so would risk their reputation and business.
PROTECT your business
Click here to generate your ScaleUp Confidentiality Agreement (One Way).
Click here to generate your ScaleUp Confidentiality Agreement (Mutual).