The Woodlands

The Importance of a Non-Disclosure Agreement

January 5, 2023

You’re all excited. You finally found someone you want to be your business partner. You want to go all in – but wait! You are going to tell this person some confidential information, information that could tank your business if he or she ran off with your genius business idea. What do you do?

This is where a non-disclosure agreement comes in.

1. What is a Non-Disclosure Agreement?

A non-disclosure agreement is an agreement between two or more parties that outlines the type of information to be shared, how it can be shared, and who it can be shared with. Most notably, it restricts the recipient of certain types of information or data from taking the information for his or her own use and benefit.

2. Why would I want a Non-Disclosure Agreement?

The better question would be, “Why would you NOT want a non-disclosure agreement?” A non-disclosure agreement can provide protection in the following areas:

  • Control over what is defined as Confidential Information
  • Control over the timing of the release of Confidential Information (if any)
  • Control over who receives confidential information
  • Control over whether the recipient can compete with you (Non-competition)
  • Control over whether the recipient can solicit your key employees (Non-solicitation)
  • Liability against security breaches, either directly or indirectly
  • Control over public disclosures and announcements
  • Control over venue and jurisdiction in the event of a dispute regarding the sharing of Confidential Information

3. What are the Different Types of Non-Disclosure Agreements?

At a high level, there are mutual (bilateral) non-disclosure agreements, and there are unilateral non-disclosure agreements. This is highly dependent on the negotiation between the parties and who is sharing the information. In most instances, there is data going in multiple directions, so a mutual non-disclosure agreement would be considered more comprehensive.

Even if there is not a stand-alone non-disclosure agreement, non-disclosure and other types of confidentiality clauses can be inserted directly into contracts. Ideally, a business would have both a stand-alone non-disclosure agreement, and then follow through with certain provisions in the contract between the parties.

In summary, a non-disclosure agreement is more than it appears on the surface. A pro-active business owner or manager will ensure that one is in place before talking to a third-party, and in doing so, will reap the most benefits and protections of a non-disclosure agreement by jumping ahead of the conversation.