Whether you are planning a business sale, exploring a partnership, or speaking with investors, a carefully prepared Non-Disclosure Agreement (NDA) can provide valuable legal assurance.
Although NDAs are not always considered a legal requirement, when sensitive information is on the table, simply trusting the other parties involved may not be enough protection.
What is an NDA and when should you use one?
An NDA, sometimes referred to as a confidentiality agreement, is a legal contract that requires one or more parties to keep specific information private. It prevents the misuse or unauthorised sharing of sensitive details disclosed during commercial discussions.
During negotiations involving acquisitions, joint ventures, or third-party collaborations, business owners often need to share information that could be damaging if made public, shared with potential competitors or used without consent.
Without an NDA, that information could be exposed or exploited without legal consequences. Whilst an NDA does not provide an absolute guarantee that the disclosed information will be protected, it does (if a party can prove the other party has breached the NDA) offer remedies or protections to a party against a party who breaches an NDA, such as an injunction and/or claim for damages.
For instance, a freelance product designer might share early concepts with a potential client during their initial consultation.
Without a formal confidentiality agreement, the client could theoretically walk away and later launch a similar design, with no legal repercussions for using information that was disclosed informally and without protection.
If you are considering an NDA, it is best practice to have one drafted and signed before any confidential information is shared.
While it is still possible to put an agreement in place after discussions have begun, this carries the risk that key details may have already been disclosed without protection, leaving you exposed and limiting your ability to take action if the information is misused.
What kind of information can an NDA cover?
NDAs can be used to protect a broad range of information, including:
- Intellectual property, such as inventions or designs
- Strategic or operational plans
- Financial data and projections
- Supplier or customer agreements
You should also factor in whether any data shared falls under UK data protection law, such as the UK GDPR. If personal data is involved, appropriate compliance measures will be required.
What makes an effective NDA?
An effective NDA is clearly drafted, specific in scope, and tailored to the situation at hand. When preparing your agreement, consider the following:
- Clearly define the information that must be protected. This could include commercial data, technical know-how, financial forecasts, or customer lists.
- Confidentiality may need to last for a set period or, in some cases, remain in effect indefinitely. The right duration depends on the type of information and the nature of the transaction.
- Some disclosures may need to be permitted, such as those required by law or those made to accountants, solicitors, or other professional advisers, so ensure these exceptions are explicitly defined.
- The agreement should set out what remedies are available if the terms are broken. These may include legal action for damages or an injunction to stop further disclosure.
To ensure your NDA truly protects your interests, we advise consulting a solicitor.
How Palmers Solicitors can help you draft NDAs
Rather than using a generic template, your NDA should reflect the unique nature of your business and the circumstances in which it is being used.
At Palmer Solicitors, we help clients draft bespoke NDAs that are robust and commercially realistic.
If you are unsure whether you need to prepare an NDA or want to ensure your existing agreement is fit for purpose, speak to one of our legal specialists for tailored advice.