Top 5 Reasons Your Online Business Needs an NDATop 5 Reasons Your Online Business Needs an NDA Top 5 Reasons Your Online Business Needs an NDA

When launching your online business, it’s incredibly important to protect your intellectual property. A business owner can never be too careful with whom they entrust valuable information related to the inner workings of their business. There are several legal documents that should be considered, especially once your business is customer facing. However, one of the most important legal documents to have ready and available from the very beginning is a non-disclosure agreement (NDA). Here are the top 5 reasons your online business needs an NDA.

What is an NDA?

An NDA is a legal document that protects your business’ intellectual property from being used by others. Although it may feel a bit awkward to request another party to sign an NDA before discussing intimate information, it is actually a very common practice that most professionals accept as a standard part of doing business. For example, if you have ever worked for a company, you have likely signed an NDA as part of your employment paperwork.

NDAs are enforceable in a court of law, and should the signing parties violate the terms of an NDA, there can be serious legal consequences. I am going cover the top five reasons you may need an NDA for your online business.

1. You Are Bringing on a Business Partner

Whether your potential business partner is your best friend from second grade or someone you found online, if you are going to be discussing the ins and outs of your business with another party, you need to have them sign an NDA.

A potential business partner is going to want to know exactly what they are getting themselves into, and in order to be successful, they should know every facet of your business. However, that gives you a ton of exposure and really puts your intellectual property at risk.

Especially if you know the person well, asking them to sign an NDA can be an uncomfortable request, but it is definitely better to be safe than sorry. You never know what relationship you will have with this person in the upcoming years and you want be protected at all costs.

2. You Are Hiring an Employee

Once your business starts to scale, you will likely bring on employees to start assisting you with the day-to-day activities of running your business. Your employees will have access to your proprietary information, but they may also have access to your customer’s confidential information, such as, personal contact or identification information, payment info, etc.

It is not only important to protect your own company from confidential information leaks, but it is equally important to protect your customers’ information. If your customers cannot trust you with their private information, then you won’t have customers for very long.

3. You Are Sending Information to a Third Party Service Provider/Supplier

There will likely be a time when you will outsource some of your business’ needs to a third party. Whether these needs are web design, marketing, consulting, or payment services – at some point you and/or your customer’s confidential information will be in the hands of someone else.

Everyone has their own “secret sauce” that makes their business successful, and hiring outside suppliers makes your trade secrets vulnerable if you do not have some protection in place from sharing the information they acquire.

4. You Are Taking on a Potential Buyer

There may come a time when you look to sell your business or merge with a competitor. Before making a decision, any potential buyer is going to want to know every single detail of your business plan, financials, projections, customers, marketing plan, etc. You will be required to be an “open book” so they can make an informed decision as to whether or not your business is a sound purchase.

Having someone with this level of knowledge can really expose your business to a lot of risk, so it’s really important that you protect yourself before giving them access.

5. You Are Discussing Confidential Information With Someone Who Is Not an Investor

If you are looking to take on a formal investment by a legitimate angel investor or venture capital firm, you will likely not have them sign an NDA. This is considered fairly taboo for the industry and can be off putting. However, investors do want to know that you are taking legal considerations seriously and requesting others to sign an NDA – protecting your business and, consequently, their investment.

If you are diving into the details of your business with anyone who you do not trust (and even those that you do!), you will want to consider requesting them to sign an NDA before your conversation with them, and especially before sending them any files.

Depending on your business, a standard NDA template will likely suffice in protecting your intellectual property. However, some businesses may want to include very specific details to ensure certain items are specially covered. In any case, no business is too small or too simple for an NDA. This legal document is a very easy way to protect your company’s (and your customers’) most valuable information from getting into the wrong hands – whether by mistake or with mal-intent.

If the other party wishes to negotiate parts of the NDA, you should really consider what implications this may have on the level of protection and the document’s effectiveness as a whole. There may be terms that you are comfortable negotiating on your own, such as the length of the NDA. However, if there is something that you are unsure about, it is always best to consult a legal professional before putting anything in black and white.

Top 5 Reasons Your Online Business Needs an NDA