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As technology and our online capabilities have developed, the digital tools available for businesses are only increasing. Accordingly, the ways that your business can share information with your customers and other businesses are varied and increasingly more convenient. Using online communication is particularly important where your business operates internationally. As a result, it is important that you continue to keep up with technology that could benefit your business. An example of this is virtual data rooms, which may be useful to you depending on the kind of business you run. Therefore, this article will explain what a virtual data room is and how the law may affect its use.

What Is a Virtual Data Room?

The concept of a data room is not a new one. Typically, it is a room where you can store confidential business documents. A virtual data room, on the other hand, is the online version of that. Notably, many businesses have replaced physical data rooms with virtual ones. As a result, you can use a virtual data room to store and share important business documents. Because of its broad application, businesses can use virtual data rooms for a variety of reasons, including:

  • merger and acquisition transactions;
  • loan arrangements; and
  • venture capital transactions.

For example, if you are selling or buying a business, you may use a virtual data room to store and share confidential and important documents for the due diligence process. Having an online space for this information sharing can be useful and convenient. You may operate a virtual data room from a local platform or use a cloud service provider to manage it.

Basically, if you need to share important business documents with another party, a virtual data room can be the method you use to store and share those documents. Some of the information you may share include:

  • contracts;
  • intellectual property documentation;
  • financial statements;
  • employee information; or
  • any other business data.

Additionally, you can specify who has access to your virtual data room and for how long. This fact becomes crucial for both security and privacy issues.

Does My Business Need a Virtual Data Room?

Not every business will need a virtual data room, so it depends on the nature of the business activities you conduct. Consequently, if sharing important contracts and information with other businesses is part of your activity, then you may benefit from setting up a virtual data room. Alternatively, if you are merging or selling your company, a virtual data room would be useful for the due diligence process. If you need to share documents with international parties on an ongoing basis, a virtual data room can make this process easier and more efficient.

Virtual data rooms offer a number of convenient benefits, depending on how you set them up. These can include:

  • access from anywhere in the world;
  • fewer organisational hassles;
  • removing travel costs for document review;
  • access logs of who looked at documents stored;
  • password protection and other security devices;
  • access controls;
  • restriction capabilities;
  • real-time document uploading and review;
  • electronic signatures;
  • convenient search and retrieval functions;
  • watermarking capabilities; and
  • file tracking.

When deciding if you need a virtual data room, it is crucial that you compare what is available in the market and what your business can afford. Different services will offer different benefits, and you need to consider what will work for your business.

Managing Security With a Virtual Data Room

Whenever you operate in an online space, you need to be mindful of what security controls you have in place. This fact is particularly true when operating with a virtual data room, where you will be storing and dealing with sensitive information, such as:

Furthermore, depending on the nature of the information you store in your virtual data room, you may have legal obligations attached to it. Therefore, you need to take steps to ensure the security of that information so that you do not fall short of your legal responsibilities.

For example, if you are dealing with any personal information, the Privacy Act requires that you take reasonable steps to secure that information according to its sensitivity. Alternatively, you may have contracts that include a duty of confidentiality, so you need to take care that you do not share any information with unauthorised parties.

As a result, you need to implement a virtual data room with robust access controls and online security methods. Additionally, you should ensure that only those who need it have access to your virtual data room and set out clear protocols for what visitors can and cannot do. Conveniently, you can set restrictions such as view-only permissions and password protection for different aspects of your virtual data room. In addition, use up to date encryption for the information you store, as well as other security methods.

Key Takeaways

A virtual data room is an online storage facility that you can use to share important business information with other parties. However, you need to ensure that you implement adequate security protections for your virtual data room so that you can meet any legal obligations that apply to your business. If you would like more information or help with your virtual data room, contact LegalVision’s data, privacy and IT lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is a virtual data room?

A virtual data room is an online space where you can securely store business documents and share them with other parties. You can set your own controls and restrictions on who can access a virtual data room.

What is personal information?

Personal information is any information about an identifiable individual. This definition means that if you can use the information to identify a living person, it is personal information.

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