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Critical Business Concepts

Understanding Non-Disclosure Agreement & Why You Need to Protect Your Business With an NDAs

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When you need to protect a business secret, product information or ensure information does not leak out to the public NDA is a must. In this piece, Efuribe walks you through the nuances of understanding Non-Disclosure Agreement and how to use it to your advantage.

A guest post by Aaron Efuribe, an accountant and auditor with ten years practical experience.

 Imagine, as a driver; you didn’t wear a seat belt. It might not affect YOU if there were no accident or turmoil. When an accident occurs, the seat belt could be the live changer.

Business comes up with innovative and reformed ideas. These ideas are unique, and it is expected to be turned into a business product or service.

As a small business owner, who’ll probably outsource a great deal of work to Consultant or freelancers, it is imperative to incorporate a NON DISCLOSURE AGREEMENT (NDA) for all your business dealing with a third party and your employees.

 What is an NDA?

Understanding Non-Disclosure Agreement & Why You Need to Protect Your Business With an NDAs 1

It’s a legal agreement between two or more parties to protect the information that is disclosed to a 3rd party.

The proprietary information includes business methods, client lists, finances, and any strategies that are not in the public domain. In case a party breaches the NDA, the aggrieved party can sue for damages, an injunction against additional disclosure.

Why your small business needs an NDA

While researching for this article, I asked a few small business owners about NDA. They were so fuzzy about it. Majority of them think that NDA is for medium and big size firms, so there is no point having one.

I agree that many business strategies may not be applied to a small business, but when you are a startup, you can cut a great deal of red tape without being concerned about repercussions.

The use of NDAs — that’s, non-disclosure agreements are not one of them.

Instances where an NDA is important

  •   An entrepreneur asked a consultant to prepare a business plan for him. The Consultant is expected to be privy to all your innovative ideas and strategies. The Consultant should sign an NDA.
  •  Numerous organizations have specific techniques, procedures and unique production processes. Carbonated drinks or a diary food company with a unique production process may be wary of their employee; the employee must sign an NDA.
  • Persons that help with advertising campaigns, which offer merchandise collect information are expected to sign the NDA.
  •   Partners in business, investors are requested to sign an NDA.
  • You are employing a website professional to develop something technical, and you have to divulge some information as well as business strategies, the developer must sign an NDA.
  • NDAs should be used as a security measure undertaken by the entrepreneur to protect and guide his business from ‘predators”.

TYPES OF Non-Disclosure Agreement

Directional NDA

It is directional and specific in terms of the disclosure. It is disclosed at every point in time when you are divulging any confidential information to a third party.

For instance, as mentioned above, do you make use of third parties to create your website and maintain your website? An NDA is expected to be signed, or else they may utilize the information and your ideas to design another person website.

A directional NDA can ensure that it doesn’t happen to your small business

Mutual NDA

As the title suggests, a mutual NDA enables two or more people to safeguard confidential information. The mutual NDA usually is utilized when two or more companies are negotiating a joint venture.

Every party should disclose plenty of information to enable the agreement to succeed, but neither want that information made public in case the talks fail.

 When negotiations go well, extra non-disclosure information is going to be integrated into the joint venture agreement to safeguard additional details discovered in the joint venture.

You may like: How To Protect My Business During COVID-19 Pandemic

 Declining to sign an NDA

In case a 3rd party refuses to sign an NDA, this is a ‘red flag’ for you.Unless they can offer a solid reason behind the refusal, you need to walk away from the business.

 When an NDA is NOT an NDA – Read this carefully

Simply because a booklet is titled, “Non-Disclosure Agreement”, doesn’t imply it gives you total security.

 Invariably you should read the lines very well because the document might be that you’re WAIVING all confidentiality rights.

The waiver may be extremely direct & read something such as, “The disclosure of information according to this particular Agreement shan’t be regarded as confidential.”

Alternatively, the language might be much more indirect and also read, “The people recognize and then consent that most information exchanged according to this particular agreement has earlier been started in public forums.”

Regardless, the “reverse NDAs” strip you of protection and shouldn’t be signed.

Final words on understanding Non-disclosure agreements

Keep in mind that these legal agreements offer you legitimate recourse in case of a breach, but the legal steps are costly, and it also takes time.

The very best thing you should do is to avoid the misuse of the confidential information of your business by:

  •  Restrict the sharing of the confidential information unless it is genuinely required to do so.
  •  In case you’ve numerous workers and many freelancers working for you, think about applying an information security policy.
  •  Training must be provided to your employees, especially during the induction  process, to help them determine what information is confidential  and how it must be handled.

Obtaining a Non-Disclosure-Agreement must be a regular practice for your business. Do not expose your ideas, strategies and unique processes to others without them signing an NDA.

It will remove FEAR and gives you peace of mind to continue to work with professionals, freelancers and any essential 3rd parties.

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