Protecting Your Business With Confidentiality Agreements

10/28/2016 | Articles & Alerts

Ideally, certain information about your business – financial data, customer lists, and trade secrets, for example – is private information that no one other than your employees, consultants, and advisors ever views. Practically speaking, however, in many situations, such as leases, the sale of your business, and mergers, the party with whom you are working will require that you provide it the opportunity to review proprietary information about your business, usually in the form of financial statements and/or other business-related operational documents, so that it can analyze the risks and benefits of your business deal. Disclosure of that information is unavoidable in many scenarios, but you can protect your company’s interests by requiring that any party receiving such information execute a confidentiality agreement. Such an agreement would require that any party receiving information that you deem confidential agree not to disclose that information to any other parties. In preparing such an agreement, several concepts are vital to protecting your business, to discouraging any impermissible disclosure of your confidential information, and to ensuring that you are properly compensated in the event of a violation of the confidentiality agreement. When you are the party disclosing confidential information, any confidentiality agreement should include provisions that:

1. limit the scope of the information that you are required to disclose, allowing you to keep private as much information as possible;
2. limit the scope of the permissible use of the information to the analysis of the specific deal the parties are contemplating;
3. require that confidential information be returned to you or destroyed after the conclusion of your business dealings with the receiving party, or at the end of a pre-determined, finite time period;
4. require that the receiving party expressly agree to be liable for loss of business, loss of profits, and similar damages, as those are the types of damages you are most likely to suffer in the event of a breach of the confidentiality agreement; and
5. define which information is “confidential” as broadly as possible, as your ultimate goal is to require the party receiving your information to maintain the confidentiality of any and all information you provide to them. The narrower the definition of “confidential information”, the less protection you enjoy.

There are certain risks inherent in disseminating confidential and proprietary information regarding your business, but in the ever-moving business world, the disclosure of certain information is unavoidable. Protecting your company when disclosing confidential information is possible by utilizing a well-drafted confidentiality agreement; and is an important part of ensuring your brand and your business interests are secure.