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Robert Anderson, Customer Experience Manager of Business-in-a-Box

Document of the Week: Confidentiality Agreement for Your Small Business

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What is a Confidentiality Agreement?

A Confidentiality Agreement is a legally binding contract where a person or small business agrees not to disclose certain information with other people or businesses. This type of agreement is also known as a non-disclosure agreement or a NDA.

When do you need a Confidentiality Agreement?

In the course of doing small business, whether developing a product or marketing a service, a company inevitably has to enlist the help of others, including employees and other businesses. If the sharing of trade secrets or proprietary information is involved, a Confidentiality Agreement is necessary to prevent the information from falling into a competitor’s hands. The invention of a new product often comes to mind when talking about a Confidentiality Agreement, but this isn’t the only type of information that needs to be protected. Software source code, customer lists, pricing information and other business related issues may need to be kept secret. Basically, if a company doesn’t want competitors to know certain information, a Confidentiality Agreement is needed when bringing others in on the project.

Key terms of a Confidentiality Agreement

An effective Confidentiality Agreement must have certain key terms to protect the information involved. Here are some of the basic terms to look for:

  • Confidential Information:  This part of the agreement describes the scope of the confidential information. It does not need to list the actual secret information, but it should highlight the subject of the information.
  • Recipient’s Obligations:  This part of the agreement lists who the recipient may share the information with, if anyone, and how the information can be used.
  • Permitted Disclosures:  Sometimes, the person or business will need to share the confidential information during the process of business. This term will describe with whom, and under what circumstances, this information can be shared.
  • No Disclosure:  If the party is not allowed to share the information with any third party, a no disclosure term must be listed.
  • No Use:  A no use term disallows the signer from using the confidential information for his own purposes.
  • Term:  This part of the agreement lists the length of time the Confidentiality Agreement is in effect.
  • No Publicity:  Sometimes a company does not want others to know that information has been shared or that it is doing business with the signer. If this is the case, the Confidentiality Agreement needs a “No Publicity” clause.
  • Irreparable Harm:  This term highlights that the disclosure or misappropriation of the confidential information will do the company irreparable harm, and allows the company to seek legal remedies in response to the breaking the Confidentiality Agreement.