The Importance of a Non-Disclosure Agreement

Houston Contract Drafting Attorney

Important information is often discussed during day-to-day business operations. Trade secrets, innovative ideas, and new projects can all help businesses maintain a competitive advantage. Many companies use non-disclosure agreements (NDAs) to protect sensitive information. Understanding how these agreements work and what they entail can help keep important business information secure.

An NDA is a legal document designed to keep sensitive business information under wraps. Often also referred to as confidentiality agreements, these contracts can be utilized any time confidential information is disclosed to potential investors, creditors, clients, suppliers, or other professional connections. Codifying the expectations and requirements of corporate confidentiality in writing and having the document signed off on by all parties can not only encourage trust but it can also deter the theft of intellectual property.

While some non-disclosure agreements bind a specific person to secrecy for an indefinite period of time, other agreements are only meant to last for a finite amount of time. Without a signed agreement, any and all information disclosed during the regular course of operations can be used for malicious purposes or simply be made public on accident. When an NDA is violated, the penalties are often listed within the agreement itself and can include damages in the form of lost profits and more.

How Non-Disclosure Agreements Are Typically Used

The sharing of information is often crucial when seeking investors, finding potential business partners, obtaining new clients, and/or hiring new talent. In order to protect the people with whom the information is shared, NDAs are often used as a framework to prevent crucial information from leaking. Information that may require the use of a non-disclosure agreement can include:

  • Secret formulas
  • Proprietary formulas
  • Manufacturing processes
  • Client or sales contact lists
  • Non-public accounting figures

Not all business practices and/or information need to be kept confidential. Public records – including information filed with the SEC or the contact information of the business – are not covered by an NDA. Courts can also interpret the scope of an NDA based on the language used in the agreement.

Types of Non-Disclosure Agreements

Non-disclosure agreements can vary as widely as the information contained within the contract, and should be tailored to each specific business and/or industry. The two main types of NDAs are unilateral and mutual.

Unilateral Agreements

A unilateral agreement binds one party, often the company itself. The majority of NDAs are unilateral agreements as they often involve employees of the business, vendors, or clients. Though most unilateral agreements are intended to protect a company’s trade secrets, they can also protect copyrights.

Mutual Agreements

Mutual agreements are created between multiple businesses engaged in a partnership, collaboration, or merger, all of which require the sharing of proprietary information.

Houston Contract Drafting Attorneys

When businesses engage in deals with other entities or hire new staff, drafting comprehensive non-disclosure agreements is incredibly important. Proprietary business information should be protected; but, because this can be a complex process, you should get the insight of an experienced contract drafting attorney. At Feldman & Feldman, we are familiar with the complexities involved in business agreements and have experience drafting and reviewing business documents to ensure all pertinent information is included. Contact us today to learn more about how we can help you protect your business.