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Non-Disclosure Agreements (NDA)

One trend we have seen during the global health pandemic is business transactions. Whether a business is closing-up shop, looking to acquire a competitor at a discount, or wants to sell assets and move in a different direction, a lot of transactions are taking place.

If you're in one of these situations, do you know how to protect your intellectual property or confidential business information? The first thing you can do is have a non-disclosure agreement.

What is a Non-Disclosure Agreement?

A non-disclosure agreement is, "... a legally binding contract that establishes a confidential relationship. The parties signing the agreement agree that sensitive information they may obtain will not be made available to any others..."

In layman's terms, for telling someone a potential business idea or showing them your confidential business information, they will enter a confidentiality agreement and keep that information private. This agreement is important for many reasons.

Obviously, if your business is the target of a potential acquisition, you will want to keep your financial information private. Most importantly because this information can be used by a competitor to your disadvantage.

But at the same time, the person that approached you about a business transaction - maybe for an asset sale or stock purchase - will need to see your financial and confidential information to make an informed decision as to whether your business and/or assets are worth acquiring.

In this type of situation, you will enter into a non-disclosure agreement to explain the rights and obligations of you and the other party in terms of what the confidential information can be used for, who it can be shared with, etc.

1. Be clear of the parties involved

Any time you have a non-disclosure agreement, it is important to be clear on the parties involved in the agreement. It may be the case that you're an individual bringing a business idea to a manufacturer or investors.

In this case, you may be individually signing the NDA, but you also want to make sure the other parties involved are signing the agreement in both an individual and business capacity.

2. Decide what the confidential information is

The next step to take is determining what exactly the confidential information is. This may be your business information or business idea, financial information, client and customer lists, contracts, things of that nature.

3. Determine Damages

Another piece of the puzzle is to agree on compensation in the event of a breach in your non-disclosure agreement. Compensation could look like liquidated damages or fixed costs, or they could be calculated by some type of formula. Even equitable relief can be granted by the court to stop a person from using that confidential information against you.

4. Specify Jurisdiction & Venue

Lastly, you will want to make sure the contract specifies jurisdiction and venue. This is also very important because we have businesses operating in Michigan and their base of operations may be out of state, or they could be a Delaware corporation which is quite common.

Protect yourself with a hometown advantage, your non-disclosure agreement should provide for jurisdiction and venue in a location that is familiar to you and your attorneys.

Corporate & Commercial Law Firm | Fausone Bohn, LLP

These are just some of the basics of non-disclosure agreements, there is a lot more to know about them and their utilizations. But take this information and protect yourself and business information anytime you are involved in a business transaction or looking for financial backing behind a business idea.

If you have any questions about non-disclosure agreements or any type of written business agreement, contact Business Attorney Brandon Grysko at Fausone Bohn, LLP. Brandon can be contacted by email or by phone at (248) 380-0000.

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