Non-Disclosure Agreements can also be known as Confidentiality Agreements. Both will generally cover the same types of provisions i.e. defining confidential information and regulating how this can be used.
Non-Disclosure Agreements (NDA). Do I need one?
This is a question we get asked time and again by commercial clients. The answer is that if you are looking to be involved in a sale or purchase of a business then the answer, almost certainly, is “yes”.
A good example of where an NDA is strongly recommended would be in the case of an asset or share acquisition where parties will need to get together, sooner or later, to start negotiations.
In that case it is recommended that an NDA is signed between the parties at the start of the process to avoid any information not being covered by the agreement.
Won't Heads of Terms deal with confidentiality issues?
One of the points of Heads of Terms is that they are drafted in such a way that the terms will not be binding on the parties. However, certain terms can be drafted as binding and would usually include confidentiality and exclusivity provisions.
Heads of Terms are rarely agreed quickly. There can be a delay or days if not weeks before they are finally agreed.
Whilst the negotiations on the Heads of Terms go back and forth there will be also be discussions between the parties involved about the various other issues and the timing of the deal etc running parallel to the Heads of Terms discussions.
There will inevitably be confidential information being disclosed in these talks that all sides will want some reassurance about the security against accidental disclosure of confidential information.
The parties involved will not want to risk accidental (or even deliberate!) exposure of sensitive company secrets to the outside world through enquirers initially identified as having genuine interests in buying or selling a business.
What provisions would you expect to be in an NDA?
- A defining statement of what all parties concerned regard as confidential information
- Specific details of who is actually allowed to access and use confidential information and regulation of how that information can be used
- Specific details about how, why and if confidential information can be disclosed by involved parties
- Provisions regarding how confidential information is held and shared, as in whether it is provided on a hard or soft copy
- How intellectual property is protected
- Details about the full extent of sharing and using of information, particularly with regard to other parties (suppliers for example)
Non-Disclosure Agreements are only as effective as the willingness of parties to adhere to it. If one of the parties decides to release confidential information in breach of the agreement, then it is nigh on impossible to make it confidential again. The Genie will be well and truly out of the bottle. The damage caused may be irreversible and the recovery of damages in such circumstances may well be an inadequate remedy.
It is still recommended that a seller has a potential buyer sign a confidentiality agreement. It acts as a disincentive to a buyer to misuse any information received, helps sets out a clear structure and helps outline the process by which information and access to key personnel will be regulated.