Do Small Businesses Need NDAs?

Small business owners often prioritize legal services based on their resources and needs. In many cases, a small business or start-up need not follow the practices a larger company may follow, such as using all of the contracts and legal agreements commonplace in large corporations. However, ignoring the need for an NDA or nondisclosure agreement could cause lost revenue for your business if an employee, potential investor, or other party uses confidential information to steal business or create a rival company.

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Creating a comprehensive, customized NDA for your company and your situation is not as time-consuming or expensive as you may believe. A Maryland business attorney can assess your business operations and draft an NDA to protect your company.

Using a basic, fill-in-the-blank form you find online does not offer sufficient protection from unauthorized disclosures of confidential information. Also, these forms rarely contain the correct restrictions on the use of confidential information or intellectual property required to protect your company fully. Using these DIY business forms can create additional problems or, at the very least, not provide the protection your business requires. Instead, consider working with a Maryland business attorney to ensure that you have the nondisclosure agreements necessary to protect yourself and your company.

What is a Nondisclosure Agreement?

A nondisclosure agreement or NDA creates a legally binding, confidential relationship between your company and another party. NDAs are also referred to as confidentiality agreements because they require another party to maintain the secrecy of information disclosed in confidence by the other party.

With an NDA, you can protect sensitive and valuable information related to your small business. Information protected by nondisclosure agreements includes, but is not limited to:

·       Trade secrets

·       Sensitive information marked or identified as confidential information

·       Information and ideas related to new products or services

·       Intellectual property

·       Proprietary information

·       Unfiled patents and copyrights

·       Manufacturing processes

·       Business plans and sales strategies

·       Customer lists

·       Market research

·       Software, algorithms, and passwords

·       Test results and test methods

The type of information that can be protected by a nondisclosure agreement is almost unlimited. Any knowledge or information shared with a party is confidential if the NDA correctly identifies the knowledge or information as private and provides the correct restrictions that limit the other party from disclosing that information or knowledge once it is received.

Without a legally binding NDA, valuable information used to make money for your small business could be leaked to a competitor or used by an employee or other party to steal business from you. Your small business could lose profits and even close from losing valuable confidential information because your company failed to use nondisclosure agreements.

Required Elements for a Nondisclosure Agreement

For an NDA to be legally enforceable, there are certain elements an attorney includes in the agreement. Essential elements of a nondisclosure agreement include:

·        Identification of the Parties

The first element of an NDA defines all parties involved, including designating who signs the agreement on behalf of the parties. The Disclosing Party is your company and the Recipient or Receiving Party is the party who will receive your information and agree to maintain the privacy of your information. Non-mutual NDAs have one Disclosing Party. In a mutual NDA, both parties agree to maintain the privacy of information disclosed to each other.

·        Obligations and Requirements for All Parties

As with any legal contract, an NDA defines the obligations and requirements for all parties entering the agreement. Specifically, an NDA defines the responsibilities of the party receiving confidential information. For example, the agreement outlines the actions that the party is expected to take to protect confidential information. The party must refrain from the use of the information for personal reasons or personal gain.

Most business attorneys spend a great deal of time ensuring this section of the NDA is clear and unambiguous. The agreement requires the party receiving information to take all reasonable steps to prevent access to confidential information. Being specific helps prove a breach occurred if the party requiring the NDA sues the other party for damages related to breaching the confidentiality requirements of the nondisclosure agreement.

·        Detailed Description of the Confidential Information

The NDA defines the information you are seeking to protect from unauthorized disclosure. Besides describing the confidential information, an NDA often describes how confidential information is identified. For example, information covered by the NDA may be marked “confidential” or identified as being related to intellectual information, company secrets, and proprietary information.

·       Term of the Nondisclosure Agreement

This element of an NDA can be a source of disagreement between the parties. A company desires to make the NDA indefinite, whereas the party signing the NDA desires to place a definite term on the obligations and responsibilities defined in the agreement. Depending on the nature of your business, a lengthy period of 10 to 20 years may be appropriate for an NDA. A Maryland business attorney can offer additional guidance based on your specific situation.

·        Exclusions to the Requirement to Maintain Confidentiality

An NDA typically contains several exclusions to the responsibilities and obligations of the party receiving confidential information to protect the privacy of the information. For example, a person is typically not compelled to maintain the privacy of confidential information if compelled to disclose the information in a legal proceeding. An NDA cannot bind a party to maintain the privacy of information publicly known or independently developed by a third party. Also, the NDA may contain specific exclusions that allow a party to disclose certain confidential information in the normal course of his or her employment.

As with the NDA section related to responsibilities and obligations, the exclusions section is detailed and unambiguous. If exclusions can be interpreted in several ways by a reasonable person, it can make it more difficult to win a lawsuit for a breach related to exclusions.

·        Consequences and Remedies for a Breach of an NDA

The nondisclosure agreement contains a section that defines the consequences for the party breaching the NDA. The section also explains the remedies for a breach of the agreement. Potential consequences and remedies may include filing a civil lawsuit seeking monetary damages, termination of an employment agreement, termination of a contract, and injunctive relief.

Contact a Maryland Business Attorney for More Information

A legally binding NDA can protect you from losing valuable information and assets used by your small business. All businesses have confidential information to protect. Working with a Maryland business attorney to draft a comprehensive NDA can reduce the risk that your valuable information is released or used by another party to hurt your small business. Contact Thienel Law today. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.