A non disclosure agreement (NDA), also known as a confidentiality agreement, can help you protect your ideas or company knowledge. They are an important tool for startup companies in particular, to keep certain information secret while they build their business. However, companies of all kinds may have an interest in stopping certain information from becoming public knowledge. This article will set out what NDAs are, and when New Zealand companies typically use them.

How Do NDAs Work?

NDAs are used to share certain confidential information with another party (whether a person or another company), and contractually prevent that party from sharing that information with anyone else. This lets you talk in confidence with groups that you might not otherwise know or trust with your information, to explore opportunities – for instance, to discuss your business with a possible investor or employee. 

NDAs are usually flexible and straightforward documents. The parties agree not to disclose confidential information that is being shared. Importantly, you can decide how to define the “confidential information” that is protected by the agreement. This is the key element to focus on when thinking about an NDA. You should clearly set out what confidential information you want to be protected.

You should also detail any exceptions. For instance, if you are happy with a potential investor to discuss the general nature of your confidential information with other investors (but not the details), you should specifically spell out this exception in the NDA.

You should consider the period in which you want to protect your confidential information. This period will often depend on what that information actually is and the broader context for your business (like a go-to-market timeline). It may be better to err on the side of a longer timeframe to offer some flexibility in case plans change and you still require protection of confidential information.

What, Specifically, Can a Non Disclosure Agreement Protect?

There are no limitations on what kind of information NDAs can protect. However, there may be limits on what the other party may agree to keep confidential. You can be as specific as you like when protecting the disclosure of your information. “Confidential information” is often used to protect:

  • your actual business idea or innovation, particularly if a patent does not protect the innovation; 
  • the design or look of a proposed product;
  • the form or details of a proposed service; or
  • your business model, business plan, growth strategy or any other commercially sensitive information. 

When Should Your New Zealand Companies Use a Non Disclosure Agreement?

There is a range of circumstances where companies look to use NDAs. The most common is in the startup phase of a company, where they are looking to protect confidential information that may be the heart of their new business. In your startup, there are many possible occasions where you need to engage with someone who may be useful for your business, but cannot risk publicly disclosing your idea. 

It may be worth considering NDAs when you:

  • consider bringing on a co-founder; 
  • go through a hiring process for an early-stage employee;
  • discuss with potential suppliers or other companies to aid in your business’ growth; or
  • begin a go-to-market strategy or want to discuss your business with potential investors.

Outside these common examples, there are many other times when New Zealand companies use NDAs. For instance, a large company may be trialling an experimental or other business innovation and may want to build a team to develop it without the public or media discovering the idea too early. Medium-sized companies considering a joint venture or other large-scale change may want to protect the risk of others disclosing that information. Given the flexibility of NDAs, there are many possibilities here. 

Key Takeaways

NDAs are documents signed between parties to protect confidential information from being disclosed. This lets you talk in confidence with groups that you might not otherwise know or trust with your information, to explore new opportunities like taking on a new employee or an investor. 

You have flexibility in designing an NDA to protect the information that you would like to keep confidential. You can stop another party from disclosing your actual business idea or innovation, any details around a product or service, or any commercially sensitive information like your business plan or strategy. There are no real limitations to what you can protect through an NDA; however, the other party is not obliged to sign it. 

Startups commonly use NDAs to protect their idea from being disclosed to competitors before they have built their business or launched a go-to-market strategy. They can also be used by other businesses when those companies want to protect certain information from public disclosure. 

If you want to know more about drafting an NDA, feel free to call LegalVision’s business lawyers on 0800 005 570, or complete the form on this page.

FAQs

What kind of information can NDAs protect?

NDAs can protect any kind of information that you define as “confidential” in the agreement.

Can you use an NDA when meeting a possible co-founder?

Yes, this is a relatively common form of NDA for startups. It prevents that person from using your confidential information to start their own business or otherwise use your idea without your permission.

How long do NDAs commonly last?

There is no exact range for NDAs – it really does depend on the business information you are trying to protect. The law does not require any particular timeframe when drafting NDAs.

Do you need an NDA if you have a patent?

In some cases, you will not need an NDA if you have a patent – this is usually when the confidential information is covered by the patent already. However, there may be other information around your business that you would still not like to be publicly disclosed or disclosed to potential competitors. You should still consider an NDA in this case.

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