All You Need to Know About Non-Disclosure Agreements


Amidst the plethora of issues that startup owners often must deal with as they grow, they often ignore the need to protect their proprietary interests. Trying to protect your proprietary interests can be challenging but knowing how to effectively use a non-disclosure agreement (NDA) makes life simpler. This article will take a closer look at what NDAs are, when they are used, and how they can benefit a startup business.


An NDA is a legally binding document which obliges the signee to protect the confidential, non-public information, given to the signee over the course of a business transaction. This prevents disclosure of the information or use of it for the signee's personal advantage. If the signee does not comply with the NDA, your startup will have legal recourse as you can sue for breach of contract and recover damages.

NDAs can be unilateral (imposing an obligation on only one party) or mutual (imposing an obligation on both parties). NDAs can only cover certain types of information. For instance, if you are pitching a basic business idea at a networking event, that is not considered proprietary information because it is not discussed in private. Specific business plans, trade secrets, technical knowledge, and other such things will be considered proprietary interests since they are unique.

The scope and coverage of an NDA depends on the context and the industry in which it operates. Like most other legal documents, an NDA is only as good as your willingness to enforce it in court. Nonetheless, an NDA is worth using because it sets the tone of the transaction at the outset and makes people more mindful of what information they will be disclosing.


The most obvious parties would be: (1) independent contractors, (2) external partners, and (3) freelance workers associated with the business. These categories are not bound by the same employment laws as more permanent employees; therefore, you should provide them with clearly defined boundaries of what is, and is not, acceptable in terms of information disclosure.

Regarding employees, most standard employment contracts will sometimes contain provisions related to ethics and privacy. However, if certain employees work with particularly sensitive information, it is important to consider an additional NDA.

Another group to consider having sign an NDA are cofounders.Cofounders usually have access to sensitive information. Although most business relationships are built on trust, you should still prepare for a scenario where relations break down. In such a case, an NDA is helpful because it will help prevent co-founders from revealing sensitive information.


1. What is Confidential?

Take time to assess what information you want to cover within the NDA. The more sensitive the information, the stronger the case for it to be on the NDA. For instance, if you will be revealing patentable information, be sure that your NDA covers it. In the U.S., failure to do so will mark the beginning of a legal grace period which obligates you to file for a patent within 12 months of public disclosure of the information.

2. Export Control Provisions.

Countries with strict export control laws, such as the U.S., cover the movement of tangible goods and the disclosure of technical information to a foreign country. Violation of the export control laws carry hefty penalties. This is important to keep in mind when drafting an NDA.

3. Purpose of Disclosure.

Consider what tasks you need to disclose information for. By limiting the purpose of your NDA to information only relevant to these tasks will ensure that the disclosed information will be used for only your stated purpose. Any use of this information outside of your purpose should require your consent from the signee.

4. Length of Confidentiality.

You can draft an NDA that binds the signee to secrecy forever but consider if this is necessary. Chances are that this might not be the case, especially if you anticipate the information becoming public knowledge sometime in the future. For example, if you are letting your signee know that you have secured an exclusive supply agreement on confidential terms, but you plan to reveal this agreement to the public on your website several months down the line, then there is no need to fight for perpetual secrecy. One situation in which it might be worthwhile to insist on perpetual secrecy is during the exchange of trade secrets.

5. Residuals Clause.

Residual clauses provide that any of the employer's confidential information that the signee learns during their employment is retained in the signee's "unaided memory" may be disclosed, regardless of the NDA. have the potential to be problematic. They must be carefully reviewed and tailored for each specific situation, and the specific confidential information being disclosed. A residual clause that has been poorly draft may result in the termination of trade secret protection for confidential information. Even the most carefully drafted residual clauses have the potential to present a significant risk to your company.

6. Unilateral NDA vs. Mutual NDA?

In a unilateral NDA, only one party is legally bound to protect information received. In a mutual NDA, this obligation extends to both parties.Carefully analyze an NDA's language to determine if it is mutual or unilateral.

7. When are NDAs Not Needed? 

NDAs are unnecessary when the information disclosed is considered common knowledge or when it contains public information.

Another instance an NDA is not recommended is when fundraising is involved. Venture Capitalists famously do not sign NDAs when going over pitch decks and other fundraising information. Insisting on an NDA in this situation will make you seem inexperienced. A better approach would be to password protect your documents and revoke authorization when access is no longer necessary.

In conclusion, when used correctly, NDAs can be an efficient way to protect your key strategic information. The key is to disclose only as much as is necessary to grow your business, without compromising any trade secrets. For assistance with NDAs and other related agreements, contact The South Texas Business Lawyers at (210) 761-6294!

Disclaimer: This article is made available for educational purposes only, to give you general information and a general understanding of the law, not to provide specific legal advice. By using this article, you understand and acknowledge that no attorney-client relationship is formed between you and The South Texas Business Lawyers, nor should any such relationship be implied. This article should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.

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