One trend we have witnessed during the global health pandemic has been business transactions. Whether a business is closing, acquiring a competing business, 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, or NDA, is defined as a “legally binding contract that establishes a confidential relationship. The part or 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 your confidential business information, they will enter an agreement to keep that information private. This agreement is important for a few 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.
At the same time, the person approaching you about a business transaction – possibly 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 clarify 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 that agreement. In some cases, you may be an individual presenting a business idea to a manufacturer or panel of investors. In this situation, 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 is the confidential information
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 be liquidated damages or fixed costs, they could also be calculated by a formula. Even equitable relief can be granted by the court to stop a person from using that confidential information against you.
4. Specify jurisdiction and venue
Lastly, you will want to make sure the contract specifies jurisdiction and venue. This is also very important, for instance, there are many businesses operating in Michigan but their base of operations could be out of state, or they could be a Delaware corporation which are 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 a few basics of non-disclosure agreements, there is a lot more about them and their utilizations, which we will cover in later posts. But take this information and protect yourself and confidential information anytime you are involved in a business transaction or looking for financial investors.
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 reached by email or by phone at (248) 380-0000.