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Nondisclosure Agreement Basics

by | Sep 1, 2023 | Articles

There are many types of contracts that Kentucky business owners and executives may need to employ at different times. One type of contract is specifically designed to protect confidential information and keep it from getting into the wrong hands, namely those of competitors. This type of contract is called a nondisclosure agreement or a confidentiality agreement.

When should I consider a nondisclosure agreement?

There are multiple times when a nondisclosure agreement (NDA) could be useful. Entrepreneur magazine indicates that when discussing the potential sale of a business, an NDA might be warranted. This could also include discussions of potential mergers. In the event that a sale or merger does not complete, a nondisclosure agreement may help keep any sensitive information shared during the negotiations safe from being publicly shared.

When a company chooses to work with other companies to license or sell products and services, there may be a logical need to disclose sensitive marketing, sales and financial data. Here again are times when
confidentiality agreements may be essential.

In the course of outsourcing services to third parties, nondisclosure agreements may allow a company to confidently share necessary information with vendors without fear that the information will be used inappropriately.

There are also times when nondisclosure agreements may be necessary between a company and its employees. Depending upon an employee’s role and the type of information a person could be privy to, these contracts may protect company interests not only during the course of employment, but also after the employee has left the company.

What should be covered in a nondisclosure agreement?

As Forbes magazine explains, a good confidentiality contract should carefully detail what information is to be kept confidential. This includes how the information is communicated, such as written and oral communication methods.

In addition to securing the promise of another party to not disclose the confidential information, an NDA should also prevent the other party from using any confidential information for its benefit.

Contracts should carefully outline any information excluded from protection such as information that is commonly known in the market or the industry. Dates for which any protection is to be provided should also be carefully indicated.

Finally, parties should determine whether or not the confidentiality agreement needs to be mutual or non-mutual. The nature of the relationship will largely dictate this.

How should I learn more about NDAs?

Before entering into any business contract, Kentucky residents and companies should always discuss their needs with a lawyer. This may provide the opportunity to learn about potential issues ahead of time and allow contracts to cover the necessary details for the protection they seek.