A non-disclosure agreement (or NDA) is a legally binding document designed to stop a business’ sensitive, confidential information and data from being shared amongst people who aren't authorised to have access to it. You’ll often hear it called a ‘confidentiality agreement’ as well.
Its job is to not only show that your interactions with the people involved will contain disclosures of information that aren’t and shouldn’t be publicly known, but also that you expect your confidential information to be respected and protected by those it’s being shared with.
It puts them on notice that they can't disclose the contents of conversations or materials that you share with them without your express, prior consent.
As this is their core purpose, NDAs are usually a single solution document and aren't a replacement for a trading, employment or shareholder contract, for example.
Contracts such as those will contain many different obligations and requirements relating to the entirety of the business relationship, not just clauses relating to the handling of confidential information.
Instead, NDAs generally belong earlier on in business relationships, usually during the exploration of an opportunity that might later transform into a contractual arrangement.
Whether it’s one-way (when only one person or business is sharing confidential information) or mutual (when both parties are sharing and receiving confidential information), a good NDA clearly describes what information is classed as confidential, why the recipient(s) needs access to it, and what exactly the recipient is allowed to do with it.
When is an NDA needed?
You might want to use an NDA in the early stages of a business relationship, whether during initial discussions or before more formal contractual documentation containing confidentiality obligations are put in place (if ever).
Those recipients of confidential information might be:
future contractors or suppliers
target trading or joint venture partners
agencies you outsource to (like building your website, looking after your IT security, helping you to develop your business plan)
a target customer who may need to understand more about how your product or service works and what you’re aspiring to before being able to commit to a manufacturing or sales deal
Those you share your confidential information with under an NDA will know they have a legal responsibility to help you protect your trade secrets from being leaked or disclosed. And they're legally bound to do this even if your discussions don’t get very far and you don’t end up working together.
When might you not need an NDA?
You might not want to have an NDA with investors.
They tend to see numerous business plans and funding requests, and many of them are sector or industry experts, making them particularly alive to what rival businesses may be doing or planning.
Their level of access to confidential information isn't dissimilar to the levels of data held by banks and professional advisers, and it can provide an investor with an excellent overview of who is doing what, how well and where the opportunities lie.
And yet, while banks and professional advisers are typically governed by codes of conduct and terms of business that require appropriate levels of client confidentiality and the robust protection of client business secrets, investors are generally not subject to the same obligations.
So it’s unsurprising that cross-pollination of new ideas and dilution of a first-mover advantage are risks that many startups and small businesses fear when contemplating how much to disclose to an investor.
However, investors are notoriously resistant to signing NDAs and can be unimpressed by requests to do so.
But the dilemma is, if you can’t demonstrate how different and innovative you are, you may lose the investor’s attention and fail to secure the vital funding you need.
Why do investors take this stance, and how much of a risk is it really?
Most investors will tell you that, as they have both your business’ interests and their own reputation for acting with integrity in mind, they'd have little, if any, incentive to disclose your confidential information without your consent.
They also point out that it would also be very impractical to sign NDAs for every startup that approaches them for funding. Some have even said that they consider requests to sign NDAs naïve.
When won't you need an NDA?
You won't need an NDA with lawyers.
Lawyers are governed by a strict code of professional conduct that affects their permission to act as a recognised and qualified legal adviser in the UK. Protection of client confidentiality is one of the absolute requirements of this code of practice. If lawyers breach the code’s requirements, they'll have their practising certificate revoked by the UK’s legal regulator and they can't lawfully provide legal advice after that.
Your lawyer-client relationship will also automatically give you legal advice privilege (protection of information shared between you and the lawyers for the purposes of gaining legal advice) and litigation privilege (protection of information shared between you, the lawyers and any third parties during court proceedings).
The advantages of these two forms of protection are that, while others may want to know what your lawyer has advised you, there are only a few exceptions where this advice would be disclosable. So in almost all cases, you can tell your lawyer whatever you want and they'll keep that information secure.
These examples aren’t exhaustive – so, as a general rule, if you’re about to share confidential information with someone who could easily share it and could benefit from doing so, it’s strongly advised that you consider asking them to sign an NDA.
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