Sacramento Business Owners Protect Their Businesses: The Smart Use of Non-Disclosure Agreements

Every entrepreneur starts with an “idea” for their business. Many of these “ideas” are revolutionary to their industries; but, without protection, an entrepreneur’s “idea” can quickly become someone else’s “idea.” So, if you have a truly unique “idea” that is not known to the general public, how do you protect it? Well – you could keep silent and say nothing; but, that makes developing your “idea” impossible. You will have to disclose your idea to a varied number of people and businesses to get your “idea” developed, marketed, sold, and so on. But, how do you maintain that competitive edge? Through the use of well thought out confidentiality and non-disclosure agreements (NDAs).Sshhh.jpg

Non-Disclosure Agreements prohibit others from disclosing a new design, idea, or unpatented concept, private financial records disclosed for a due diligence review, or other confidential trade secrets. The purpose of the NDA is to create a confidential relationship between the owner of the confidential information and others to whom the information must be disclosed to further some potential business interest. Should one of the parties to an NDA use the confidential information, or threaten to use the confidential information, without the owner’s permission, a court can issue an injunction to stop the thief from any further use of the confidential information and may even award you monetary damages.

So, how do you know when to use a NDA? Here are some guidelines:

1. You invite another person to “partner” with you in creating your business or developing your idea.
2. You will be presenting a non-patented invention or idea to a potential investor, business partner, or manufacturer to develop a prototype.
3. You will be giving sensitive financial, and other, business records and information to a prospective purchaser or investor in your business,
4. You will be presenting a new product that is not yet available to the public to a prospective customer, buyer or licensee.
5. You will be giving independent contractors or other outside businesses access to sensitive business information that will be providing you a service.
6. Whenever you hire an employee.

But, beware. NDAs are not a one-size-fits-all form contract. In fact, most NDAs are negotiated agreements. A NDA should be specifically drafted for each particular situation. A well drafted NDA will include the exact type of information to be disclosed, to whom it will be disclosed, how the information will be disclosed, the intended use of the disclosed information, for how long the confidential information will be available, and what protections the receiving party must take to protect the information. Lastly, the NDA should provide remedies in the event the agreement is breached.