Confidentiality Agreement
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What it is
Protect confidential information when you share it.
A Confidentiality Agreement (also called a Non-Disclosure Agreement) is an agreement to keep information you share with someone else confidential. They can be mutual, meaning both parties share information and promise to keep it confidential. They can also be one-way, meaning that just one party is sharing information to the other and they want it kept confidential. Here are the key parts to a Confidentiality Agreement:
- Definition of what will be confidential information
- Allowed purposes for using confidential information
- Who confidential information can be shared with
- Who owns the confidential information
- How long the information must be kept confidential
- Any exceptions to confidentiality
Who needs it
When you need one
You want to share information and keep it confidential.
Seems simple and straightforward, and it kind of is. If you want to share any information that you consider confidential, you can use a Confidentiality Agreement to protect that information. Whether you’re sharing a business plan, product details, your million-dollar idea, financial information, or anything else secret and confidential about your business, a Confidentiality Agreement is the contract that makes the person you’re sharing it with promise to keep the information confidential and be liable if they disclose your information without your permission.
You’re sharing intellectual property details.
Intellectual property (things like software code, copyright, and patents) can be some of your most important assets, and also some of the hardest things to protect. Using a Confidentiality Agreement when you want to share your intellectual property information with others is a key step to safeguarding your property.
You’re hiring a company, contractor, or other service provider to do sensitive or confidential work.
Confidentiality comes up all the time when you hire a company or contractor to do work for you. It can be a little intimidating to start sharing your great idea, product plans, or other sensitive details. After all, a lot of those details will be the building blocks of your company. Often the agreement you have with the service provider will have confidentiality clauses. But if it doesn’t, a Confidentiality Agreement will give you comfort that your ideas and information will be kept secret.
You’re collaborating on a project or joint venture.
Collaborating on a project with another business, even a competitor, is a common thing to do and a great way to build up your company. You could be working on a new product together, a services project, bidding on some work where you’ll work as partners, or any other type of joint venture or collaboration. When you do so, you’re likely to share confidential information with the other company. A Confidentiality Agreement will protect that information.
You’re in talks to acquire or merge with another business.
When you look at acquiring another business or merging with another company, one of the first steps is to sign a Confidentiality Agreement. A merger or acquisition starts with “due diligence”, which is just a way of saying the companies are going to share some of their most sensitive information to decide whether the deal is worth it. Before you share any of that information, or even the fact that you’re in talks to acquire or merge with another company, a Confidentiality Agreement is a very important agreement to sign.
You’re talking to potential investors.
Investors need to know about your business when they decide to make an investment. Some of the information they may ask for could be secret or sensitive. Sometimes investors are looking at similar companies or competitors too, making the information you share even more sensitive. Use a Confidentiality Agreement to protect you when sharing details about your business that you want your potential investor to keep secret.
FAQs
How long should information stay confidential?
Confidentiality Agreements usually have a time limit on them. That’s to give the parties some comfort that they can’t be liable for accidentally disclosing confidential information forever. Also, having a time limit can help keep the agreement enforceable. But that said, there are times when a Confidentiality Agreement will make the parties promise to keep the information confidential without a time limit.
A typical Confidentiality Agreement will say that information must be kept confidential for 1 to 5 years. The more sensitive the information, the longer the confidentiality period. Generally, 10 years is the upper limit we see in Confidentiality Agreements. For very sensitive information, there may be no time limit at all.
There is an exception… trade secrets.
A trade secret is a special type of intellectual property. They include any business information that gets its value from being secret and they can be very valuable. For example, a new technology, an original product, the perfect recipe, or a gold mine of customer data. Speaking of recipes, one of the most famous trade secrets is the Coca Cola formula, which has been kept secret for over 100 years (well past the time that a patent would have protected it!). In our Confidentiality Agreements, we say that trade secrets must always be kept confidential. That’s also important to say so they don’t lose their intellectual property status and protection under trade secret laws.
When should I use a mutual vs. a one-way Confidentiality Agreement?
Always check your Confidentiality Agreement before signing to see if it’s a one-way (just one person has to keep the information confidential) or mutual (both parties have to keep the information secret). Use a one-way Confidentiality Agreement when you’re sure only one party will disclose the information. If both parties will be sharing information, then use a mutual Confidentiality Agreement.
What if my contract already has a confidentiality clause?
Sometimes you may already have a contract that has a confidentiality clause in it that makes one or both parties promise to keep information secret. For example, you may have a Services Agreement with a web or app developer that already says the information you share with each other must be kept confidential.
When you look at the confidentiality clause in your existing contract, the important things to look for are:
- Scope: does the description of what is considered confidential information cover what you are sharing or does the scope need to be updated?
- Duration: does it protect the information for long enough? For example, is the confidentiality clause in the existing contract a 1 year promise but now you would need longer protection?
- One-way or mutual: is the existing agreement’s confidentiality promise one-way or mutual and what do you need right now for the information you’re sharing?
- Continues after the contract ends: does the confidentiality clause in your existing contract end when your agreement ends or does it continue on after?
If your existing contract covers you well enough, then great. If you see some shortfalls, you can sign a new Confidentiality Agreement to be safe.
Is any information we share confidential, or are there exceptions?
Yes, there are exceptions to what will be confidential information. Here are the main ones:
- Public knowledge: Information that’s already publicly known (unless it’s only public because of a confidentiality breach)
- Independently developed: Information either party develops on their own without using the other person’s confidential information
- Information from someone else: Information a party gets from someone else without any confidentiality attached to it
- Pre-existing knowledge: Details that a party knew before they were shared by the other party, unless those details were also covered by a Confidentiality Agreement
- Legally required disclosure: Information that is ordered by a court, law enforcement agency, or government body, but only that part of the information that legally must be disclosed