Getting to grips with the importance of Non Disclosure Agreements

Any business owner who’s been approached by a potential investor or partner is always initially pretty flattered. It’s great to have someone else show an interest and see the potential of your business.

But if you’re talking to a potential investor, partner, licensee, buyer or supplier you’ll want to make sure your interests are adequately protected. Providing free access to business and financial information is certainly NOT recommended unless you have a proper agreement in place. A good non disclosure agreement will protect your business, but more importantly the process of sorting out a non disclosure agreement will force you to think through the consequences of sharing sensitive business information.

Firstly, you should take the time to work out what information you are going to be disclosing, how confidential it is (certain aspects may be more confidential than others) and why you are disclosing it. This will also help you understand what it will cost you if your confidential information is misused or abused. If the cost is minimal, you might not require a non-disclosure agreement at all. If the cost is high, it will be better to have a lawyer draft the non-disclosure agreement for you to make sure it really does protect you. After all, lawyers carry insurance, so if they make an error and you suffer loss, the insurer will pay. If you have no agreement, or draft your own, you leave yourself open to the potential loss with no recourse.

So what should the non disclosure agreement include?

It will need to include full details of the parties making the agreement, a full definition of the ‘confidential information’ that is to be disclosed and what the recipient is allowed to do with the information. You must include a specific confidentiality obligation, which should have a time scale attached plus you might want to consider non solicit / non compete clauses and break or lock in clauses too. Suffice to say in most cases you will need to think very carefully and take professional legal advice if you want to achieve proper protection.

You may find the other party to the deal gives you their standard document to sign. Beware: make sure you are fully comfortable with any agreement and all of its terms before you sign it. It’s worth noting that non-disclosure agreements are normally biased in favour of the drafting party. So don’t be afraid to ask why a clause is included, what it means and, if you are not satisfied, to ask to have it removed or amended.

A non-disclosure agreement is a commercial agreement much like any other and bargaining power counts. Like any other commercial agreement or contract it’s essential you understand the document you are signing and that, in the rush to move ahead with a new business venture or deal, you don’t leave your business open to unnecessary risks.

Sue Mann
Commercial Solicitor Birmingham