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When is a confidentiality agreement necessary?

An important part of managing your California company is protecting its assets and proprietary information. However, business transactions and other circumstances may require you to share some data with other businesses, organizations or individuals. In these situations, you may want to create a confidentiality agreement for the other parties to sign. This document, also known as a nondisclosure agreement, may help ensure your company’s sensitive information remains secure.

Forbes lists several common situations where your business may benefit from an NDA. For example, if you want to sell your company, you may need to share sensitive financial data with a prospective buyer. A presentation about a new invention or product to an investor may include proprietary data you want to keep secure. If you hire a business consultant or marketing firm, you may need to share sensitive information as part of the work agreement. In cases such as these, having others sign a confidentiality agreement may reduce the chances of your company’s private data becoming public knowledge.

There are two basic types of NDAs: mutual and one-sided. You may use a one-sided agreement when your company will be the only party sharing information. If the situation requires you and another business to share confidential information back and forth, you may want to draft a mutual NDA. In general, a confidentiality agreement should include some basic elements: the names of all involved parties, the definition of the confidential data, the term of the agreement and any exclusions to the nondisclosure requirement. You may need to include other things in your NDA to cover unique circumstances, such as what should happen in case of a legal dispute.

This general information on nondisclosure agreements is intended to educate and should not be interpreted as legal advice.