Sworn to Secrecy: When to Leverage a Non-Disclosure Agreement

When running a business, there are many times when your employees need access to ‘company secrets.’ Whether it is a complex formula for a new product, or information about a future advertising campaign, you don’t want anyone sharing this information with the news, consumers, or competitors. To help ensure this doesn’t happen, you can have all employees, vendors, contractors, and anyone else with access to the information sign a non-disclosure agreement.

This agreement is a legally binding document that has the person signing it say that they understand that they are getting private information. It also states that they will not share it with anyone outside of the company (or anyone inside the company that doesn’t have a right to it).  It is best practice to have a new employee sign the Non-Disclosure Agreement as a condition to employment.  For existing employees, you will need to give something in exchange to make the agreement valid.  A one-time payment, raise or other compensation in exchange for execution of the agreement will suffice for existing employees. The following are some good situations where a non-disclosure agreement should be used:

When Negotiating the Sale or Licensing of a Product

If you will be selling the rights to a product, or looking to license it, it is important to have the other parties sign a non-disclosure agreement before revealing anything proprietary. This will prevent the other parties from potentially just taking the information they found and starting out on their own. It will also keep them from talking about the deal to others, which could put future deals in danger.

When Employees Have Access to Confidential Information

As mentioned above, employees often have access to confidential information that is necessary for doing their job. Providing them with this type of information is essential for operating a business efficiently, but it also carries the possibility of putting company secrets at risk. Taking the time to have everyone sign a non-disclosure agreement before they start will minimize the risk of information being leaked.

When Discussing Opportunities with Potential Partners or Investors

If you are looking to bring in a new partner to your company, or attract potential investors, you will need to show them why your company is valuable. If you have them sign a non-disclosure, you don’t have to worry about what they will do with the information they got in your discussions. It also allows you to speak more freely, which helps to improve the chances that they will want to invest in your company.

When Sharing Information with a Third-Party Company

Many businesses today bring in outside companies to help accomplish certain tasks. This could be an IT vendor to handle computer systems, maintenance teams, or just about anything else. When contracting with these companies, it is a good idea to require them to sign this type of agreement to keep your information safe.

When Discussing the Company with Potential Buyers

When you want to sell your business, you’ll need to disclose all the information about it to potential buyers. If they don’t end up buying, however, that information is at significant risk. Any legitimate potential buyer won’t hesitate to sign a non-disclosure agreement before starting any discussions, and will actually see it as a positive business practice that may drive the value up.

We are Here to Help

If you would like to have a non-disclosure agreement written up for your business, we are here to help. Contact us to set up an appointment where you can come in and discuss your Washington State business law needs with us.

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Written by APH Law PLLC

APH Law PLLC

When we founded APH Law PLLC in 2010, we did so out of a desire to connect business owners with more and better opportunities. No matter what industry you’re operating in, creating a strong foundation, preparing for the future, and protecting against challenges are key to long-term success. It is this kind of support that we take tremendous pride in helping businesses.