Confidentiality agreements for small businesses

What is a confidentiality agreement?

A confidentiality agreement is a legal document that sets out how information can be shared in confidence. This could be between potential partners and investors, advisors, contractors you work with, or people you employ in your business.

Let’s say you’re working on a new business idea and are speaking with a financial advisor, a confidentiality agreement can be put in place to protect your plans and keep your invention or design secret.

You might also find our guide to intellectual property useful.

What does confidential information cover?

‘Confidential’ means unpublished, not externally communicated outside the business, or otherwise not publicly or generally accessible information and materials.

This could include confidential proprietary information relating to your business, for example:

• business activities
• customers
• clients
• suppliers
• plans and intentions
• market opportunities

It may also include confidential operations, processes, product information, knowledge, technical information, designs, trade secrets, and software. Beyond that, it could cover information, findings, data, or analysis that’s come out of the confidential information.

How does it work?

The confidentiality agreement takes effect from the moment it’s signed by all parties. If one of the parties breaks the agreement, they could face legal action or fines.

Sometimes it might not be clear if something disclosed by the other party should be kept confidential. If that’s the case, it’s always a good idea to treat it as confidential unless it’s confirmed in writing by the owner of the information or materials.

What is an NDA?

An NDA, or non-disclosure agreement, is a type of confidentiality agreement.

There are two types of NDA: one-way and mutual. A one-way NDA is for when you’re the only one disclosing confidential information, while a mutual NDA is needed when both parties are sharing information.

Here’s just a few examples of when you might use an NDA:

• speaking to investors – for example angel investors
• negotiating with manufacturers while developing a new product
• entering into a partnership or merging with another business – you might use an NDA to keep this confidential from employees and the general public until a deal has been made
• speaking to suppliers when considering outsourcing options for a new product
• for staff members – an employee confidentiality agreement may be used to prevent an employee sharing information about your business

What to include in your confidentiality agreement

When you create your own confidentiality agreement, you’ll need to add in specific details:

• recipient company name and address
• date
• your company name
• your company address
• your registered company number

Both you and the other parties will need to sign this document to agree to its terms. The signed agreement should then be returned to you.

A typical confidentiality agreement template outlines the purpose behind the agreement, along with the limitations on obligations. There are also sections on how you return the confidential information, as well as how to terminate the agreement if you or another party needs to.

You may also want to get legal advice on drawing up an NDA template appropriate for your business. As business law is a complex and important topic to get right, be sure to take legal advice if you’re not sure of anything.

Do you have any questions about how to draft a confidentiality agreement for your small business? Let us know in the comments.

More small business guides

• A guide to the Data Protection Act and GDPR for small businesses
• How to write a staff handbook
• What is intellectual property?
• How much business insurance do I need?