Nondisclosure Agreements or Confidentiality Agreements are commonplace in today’s business environment.
Here are 5 provisions of any such agreement to check, before you sign the agreement:
- The Signature Line. Every agreement is executed by someone. Who is executing this one? Determine who you intend to be bound by the agreement – an individual, a company, a division – and bind that party. Determine who will be bound by the provisions of the agreement. If it is a company, is the company required to make certain related individuals (like consultants or advisors) are bound by the agreement? Is the agreement with a division of a larger company – or all of the company?
- The Definition of Confidential Information. Of course the agreement will define confidential information as something relevant to your discussions, but look closer. Does the information have to be marked “confidential”? Some agreements cover only written information, while others cover information no matter how it is conveyed – even if verbally at lunch. Many agreements that refer to information shared in conversation require that the confidential portion be summarized in writing to be considered confidential.
- Purpose of the Agreement. Review the purpose of the need to disclose the information to determine if it is constructed as tightly as possible. Some agreements contain sections on permitted uses, which should closely follow the purpose for the disclosure.
- Term. The agreement will establish a period of time through which the information will need to be protected and held confidential. Rare is information that might have a perpetual confidentiality term, as standard business information may be limited to two to three years.
- Extra Protections. Consider the business situation generating the need for the agreement. Often the nature of the business opportunities or relationships might require a “non-circumvention clause” (attempting to prevent one party from using the information to go around the other party) or a “non-solicitation clause” (attempting to prevent one party from hiring the employees of the other).
The common practice of requiring nondisclosure agreements should not result in ambivalence to their review. There are many other critical issues to review. Consider all of the provisions carefully, especially these five.
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