Are you about pitching your idea to investors? If YES, here is a detailed guide on how to write an ironclad confidentiality agreement for a business plan. Confidentiality statements are documents that are prepared for the safety of parties that are about to go into a business contract.
Also known as non-disclosure agreements, confidentiality statements help to preserve sensitive information that various business parties might bring to the table when transacting business. Business confidentiality statement in essence is a document that states that when a company’s business plan has been revealed, they will not be able to discuss the contents of it with anyone that is not part of the agreement.
Confidentiality or nondisclosure agreement has various uses in the world of business. An individual with a patentable invention or idea may need to enter into partnership with a manufacturer or marketing firm; and of course, he would want to keep his or her invention a secret.
Again, two companies considering a joint venture may need to share the names of their investors – but may not want those names to reach competitors’ ears. Confidentiality agreements can cover all these scenarios; the parties can tailor them to their specific needs before a meeting or negotiation, or over the course of a contractual relationship.
Tips to Note When Writing a Business Plan Confidentiality Statement
A. Use the proper contract format
The proper contract format that is generally used when writing a confidentiality statement is the standard contract format. In this writing format, single-spaced paragraphs with a double space between them is used. Each paragraph constitutes a separate term of the contract and are also numbered for specification. If you have any sub-paragraphs, indent them under the main paragraph and mark them with a letter, as though you were writing an outline.
B. Agreement type
There are two types of agreement to use when writing your confidentiality statement. A unilateral and mutual confidentiality agreement. A unilateral confidentiality agreement is used when only one party is disclosing information, while a mutual agreement is used when both or all parties involved are disclosing information.
You have to decide whether the confidential relationship established will be mutual or one-way. Mutual confidentiality agreements are necessary when you’re providing information to a company so they can provide you with something secret in return. For example, you may be disclosing your plans for a secret invention to a professional who will help you devise a marketing plan.
You need a one-way confidentiality agreement if you need to share confidential information with an employee or contractor who will not be sharing secrets of their own, simply doing work for you. There are also other scenarios where you may require either type of agreement, that is why you have to note the type of confidentiality agreement you need.
How to Write an Ironclad Business Plan Confidentiality Agreement
Provide a list of parties involved in the agreement
When writing a confidential agreement, you must identify who are the parties to be covered by the agreement. If someone is to be involved in the agreement, but he or she is not listed, you must know that the agreement is not binding on them.
For example, if the agreement is between two companies, the CEO of the company may be able to sign for her entire company, but the agreement should also specify that all employees of the company who have access to the information are bound by its provisions.
Parties can be identified by referring to classes of people, such as “employees” or “engineers,” as long as the person signing the agreement has the authority to bind those people.
Unless the agreement forbids a contractor to have a subcontractor assist with the work, all subcontractors should be included as parties to the agreement as well. This is done so as not to leave any loopholes behind that people can take advantage of.
Describe what the other party is agreeing to
In this part, you need to make known the types of information you wish to keep confidential. This can include any sort of information that might be exchanged between the parties. For instance, if you are designing a software, you might include not only the code and design of the app itself, but also any prototypes, testing procedures and results, or reviews and comments from designers.
This portion of the agreement is designed to set the boundaries of confidential information without disclosing the information itself. It can also be stated that information cannot be disclosed without written consent of the Disclosing Party. The information should only be used for business purposes, and only on a “need to know” basis. And that the information can only be disclosed when the receiving party signs a non disclosure agreement.
List information excluded from confidentiality
Of course not all information should be hidden in a business arrangement. So, for this reason, you need to specify the information that are not under confidentiality. These information may not be a list of specific things, but broad categories of information that don’t have to be protected as confidential. Most of these categories are created by law.
For instance, if an information is already public knowledge then it is not be put under the category of protection. Likewise, information that the receiving party learns from a third party or of which they had prior knowledge cannot be considered confidential, and should be listed as non confidential.
One of the most important exclusions is that if the receiver creates something independently before entering the confidential relationship, it cannot be considered party of the confidentiality agreement even if it happens to use or include some of the same or similar secret information or processes.
Other things that are not under the confidentiality agreement include;
- An information the Receiving Party owned before the agreement
- If the Receiving Party legally received it from another source
- If the Receiving Party is required to disclose in a lawsuit or administrative proceeding
- If it is being or has been developed by the Receiving Party’s employees, consultants, or agents.
Describe what happens if the other party breaches the contract
Wherever there is a law, there must be consequences for breaking it. A typical remedy for this type of contract is an injunction. You can ask for a court order to stop the person who breached confidentiality from continuing to share the information in violation of the agreement.
In some federal cases, under the DTSA, a court may grant the owner the right to seize the property which may be used in “extraordinary circumstances.” You may also require the return of Confidential Information.
You also have the ability to sue for damages incurred as a result of the breach of confidentiality, which may include penalties. For example, in some states you may have the ability to get double or triple damages if the breach was intentional rather than accidental.
Some confidentiality agreements include stiff financial penalties if secret information is revealed to the general public. Others leave the consequences up to a judge or arbitrator to decide. How detailed you want to get with penalties generally relates to how unique the information being disclosed is, and how damaging it would be if it got out.
Establish the obligations of the party receiving the information
Confidentiality agreements typically limit the ways the receiving party can use the confidential information provided, as well as provide the standard for keeping and protecting confidential information.
For example, if you’re looking for investor evaluations of something you’ve invented, your confidentiality agreement may specify that the information can only be used for the purposes of evaluating the product and not in the evaluator’s own business.
If you’re having an employee or contractor sign a confidentiality agreement, you would probably want to limit your employee’s use of information to the performance of job duties directly related to the employment.
Many confidentiality agreements recite that receivers must keep the information disclosed to them in the same way they would keep their own confidential information. However, this statement only works if the receiving party has a known policy for handling confidential information.
Generally, confidentiality standards include limiting access to the information and taking basic precautions to keep the information secure so it doesn’t easily fall into outside hands. Such precautions might include, for example, using encryption for emails discussing the confidential information.
If your confidentiality agreement relates to software designs, inventions or technology, it should include a statement that the receiver of the information has no license, expressed or implied, in the information by virtue of its disclosure.
State when the agreement ends
Whatever has a beginning must have an end, and same applies to a confidentiality agreement. In writing one, you have to specify when the agreement is going to elapse, and when the parties can get out of the loop. State when the agreement ends and what notice must be given to the other party about the termination. You can set one of two options for when the agreement ends:
Your agreement should specify two time periods: the period during which disclosure will be made, and the time period thereafter during which the information should be kept confidential.
American confidentiality agreements typically last for a period of five years, although some may only last two or three years. The end point doesn’t have to be a specific date, but there should be a specific date used as a starting point. Otherwise it’s unclear when the agreement will take effect and for how long it will be enforceable.
If your agreement specifies a confidentiality period of two years, for example, but fails to establish when that two year period starts, the receiver of the information can argue that she didn’t believe the agreement had gone into effect yet.
Another way to set a specific starting date is to have the confidentiality period start from the date the agreement is signed. If you use this method, make sure you don’t disclose any secrets until you have the signature and the agreement is in force.
The confidentiality time period also may end when a certain event happens. For example, if you’re seeking evaluation of a new product, the confidentiality period may end when you market and distribute that product in stores.
Add any necessary miscellaneous provisions
This section is typically located towards the end. The miscellaneous section is sometimes called boilerplate. All agreements contain various clauses that don’t fit in any other section, such as which state’s law will apply and whether attorneys’ fees will be available to an injured party if they agreement is breached. These agreements are then put under the miscellaneous section. This section, though negligent, but should not be overlooked because of the details it is wont to contain.
Provide space for all parties to sign the agreement
For your confidentiality agreement to be binding, it has to be signed. For this reason, you have to provide a page where parties involved in the agreement would pen down their signatures. Without the agreement signed, it cannot go into effect.
With the use of a confidentiality statement, otherwise known as a non-disclosure agreement, the parties can keep nonpublic information under wraps. These contracts bind the parties to very specific pledges on the disclosure of information and are enforceable under the laws of the state where they are created.