When Does a Business Need an NDA?

by Legal Goodness June 09, 2024

Content, data and sensitive information are the foundation of business. Protecting confidential information in the digital age is more important now than ever. While most business owners understand the basic concept of a "non-disclosure agreement" or "NDA" not all of us know when to use one.

Let's discuss when exactly does a business need to use an NDA.

New Ideas, Concepts & Strategies

Starting a new venture often involves sharing your big ideas with potential partners or advisors. You may also excitedly share info with business acquaintances and colleagues for feedback.

In theory, discussing a new business venture may seem perfectly harmless and sometimes it is. But there are occasions where this can be detrimental.

You may not feel comfortable asking a confident to sign an NDA, so it will be your decision whether to trust each person you share information with to be discreet and not share or copy your concept.

Note, that ideas are not protected by intellectual property laws.

Ideas cannot be copyrighted or patented. IP laws protect ideas that are expressed in a specific form (a book or invention, for example).

That said, you can deem certain information "confidential" and have those with access to such information sign an NDA to help prevent "copying" or outright stealing your methods.

Working with Contractors

Small businesses frequently rely on contractors and freelancers for various tasks, from graphic design to software development.

These professionals may need access to confidential information to do their job effectively. This is the perfect time to pull out a non-disclosure agreement.

When a contractor has access to your processes, financials and strategies, it places you, the business owner, in a vulnerable position.

Will they share this information with a competitor?

Will they copy my methods and sell them as their own?

Use an NDA requiring the freelancer to keep your information confidential or possibly suffer consequences.

Collaborating with Others

Collaborating with other business owners can drive growth for sure. But they can also require sharing significant amounts of sensitive information.

This applies to both sides, you and the other business owner. Typically, with a collab you're both sharing aspects of your business and expertise and it's very easy to get comfortable and share more than is necessary.

This may be an old friend, mentor or your business bestie, but no matter the relationship, if your sensitive data will be shared, this is the perfect opportunity to use an NDA.

Don't be afraid to ask.

And if you are, think about the consequences if you don't, and that can be a helpful barometer on how to proceed.

Just remember, it can protect you both by using a mutual NDA so that the protections swings both ways.

Hiring Employees

There was a time when most employees were not required to sign an NDA upon hire.

Those days appear to be long gone.

In this digital age, employers are increasingly asking employees to sign NDAs along with their offer as part of their new hire onboarding.

In this digital age, when bringing new employees into your small business, you'll want to consider whether they will have access to any sensitive information.

If your new hire will have regular access to business methods, strategies and customer data, you should have them sign an NDA.

Selling Your Business

There may come a time when you're ready to sell your business. This process typically involves fielding offers and the potential buyers will want to see detailed confidential information.

Potential buyers will ask to see financial records, customer data, operational details, and proprietary technology.

And you may have to share this multiple times before you contract with the actual buyer.

This is another scenario that places your business in a vulnerable position where often only a few people know all of the specific inner workings of your business and now you're putting it on a platter for the highest bidder.

NDAs are standard in this process so the buyer shouldn't be surprised by the request to sign.

It helps protect your business from potential buyers misusing your data if a sale doesn’t go through.

Need an NDA?

Not all non-disclosure agreements are the same. Have the right legal terms in place to prevent another company from breaking through your legal defense. Legal Goodness offers non-disclosure templates (unilateral and mutual) that you can easily edit with your personal business info. Save time and money by doing it yourself with our business templates, guides and resources to keep you legally protected.