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When should you enter an NDA as a business?

On Behalf of | Aug 4, 2023 | Business

Entering into confidentiality agreements is a common practice in the business world. However, companies are not required to enter into one. Whether a company needs to sign a nondisclosure agreement (NDA) depends on its goals and priorities.

When you have trade secrets and internal information to protect

Most businesses, if not all, have unique practices, formulas, strategies and other valuable information contributing to their success and competitive standing in their respective industries. If someone leaks any crucial information to a competitor or the public, the business can face many complications, including the loss of its viability and competitive edge.

Some of the situations that warrant an NDA include the following scenarios:

  • Presenting a product or idea with concrete details to a prospective buyer or investor
  • Entering into an employment contract with an employee
  • Employing the services of a firm or agency that has access to the company’s sensitive information

In these situations, the other parties acquire valuable information due to their relationship with the company. A company cannot successfully sell or operate its business if it does not allow information access to buyers, investors, employees and partners. Nonetheless, they can provide information access without worrying about illegal disclosures if they enter into NDAs.

An NDA can protect your business as long as it is valid

NDAs are enforceable in Texas, so businesses in this state can protect their rights by establishing a confidentiality contract. However, the company must ensure that the information they are protecting is a legitimate business interest, meaning it is not commonly known to the public. Moreover, the agreement must be reasonable as to the duration and scope.

Having said that, businesses must follow their respective state rules on NDAs to ensure the contract’s enforceability. An expert review of the NDA draft can help determine whether the contract is ready.