When a Confidentiality Agreement is your best friend.

By On Your Terms co-founder Claire Bodle
Dec 2023

Confidentiality Agreement, Non-Disclosure Agreement, NDA, Business Secrecy Agreement, they go by various names, but these little documents are brilliant as they allow you to begin exploring your new collaboration, project or transaction without worrying about giving away your secret sauce.  This blog looks at what’s included in a Confidentiality Agreement (or CA), who does (and doesn’t) need one, and the key benefits of putting one in place.

What does a Confidentiality Agreement cover? 

A confidentiality agreement can be one-way or mutual. Meaning, it can apply only to information shared from one person or business to another, or it can also apply to information shared back the other way. The key thing a CA covers is that the person or business receiving your info can’t share it with anyone else. Usually, a business receiving confidential info will be allowed to share the information with its employees, contractors or advisors, but this should be limited to only where the employees/contractors or advisors need to know the info for the project, and they should be restricted from sharing it with anyone else. Most CAs will specify the purpose for which the confidential info is being disclosed, and that the info can only be used by the receiving person/business for that purpose. 

A CA should cover all confidential or commercially sensitive information (ie, info that gives you a competitive advantage) you share with the receiving person or business, including details of your products (if original), proprietary technology, customers, trade secrets, formulas, processes, prototypes, designs, business plans and strategies, marketing strategies, finances, customer and supplier lists, and employees. It won’t apply to any information available to the public, already known by the receiving person/business, or developed separately by the receiving person/business. Also, it won’t cover information required to be disclosed by law.

While a CA provides legal protection, remember it isn't a guarantee the receiving party will treat the info confidentiality (and once the info is out there, monetary compensation might not cover the harm caused).  You’ll still need to consider the circumstances and evaluate the trustworthiness of the receiving party before disclosing sensitive info. Look at their reputation and previous business dealings and only disclose info that is necessary for the intended collab or business relationship. Make sure you monitor their compliance and address any concerns promptly.

Who needs a Confidentiality Agreement?

Confidentiality agreements are handy in lots of different situations, here are some of the key ones:

• You’re developing a product, and you want to share your original ideas, designs, tech or prototypes with a potential partner (but no one else)
• Your business is for sale, and a potential buyer wants to see your customer and supplier lists and financials as part of its due diligence
• You’re providing a consulting service to an organisation, and you need to see their commercially sensitive info to provide your service
• You’re providing some product samples to a retail store to consider stocking, your product is original, and you want to make sure your product and product info can’t be copied
• Your business development advisor needs to see your business plans and strategies
• Some interested investors want to see your financials

A confidentiality agreement is the first step in any investigation, exploration, or collaboration. It might well get replaced by another document as a partnership or deal builds momentum, but because you don’t know what that partnership or deal looks like at the start line, a CA will make sure no one gets burnt before you’ve figured out the details (or if it all falls flat).

Who doesn’t need a Confidentiality Agreement?

If you already have another agreement with the person or business you’re sharing info with that protects the confidentiality of that info, you may not need a CA. Many legal documents include confidentiality obligations, such as shareholders’ agreements, JV agreements, business sale and purchase agreements and term sheets (but make sure to check if the clauses are binding).

If you’re not sharing anything of a nature that needs to be protected, for example, if you’re chatting about an idea, but no one is bringing any original work, or the information is already public, the information won’t be considered ‘confidential’ and a CA won’t protect against the disclosure of that info.

What are the benefits of a Confidentiality Agreement? 

A confidentiality agreement allows you to progress with your investigations with confidence. Getting one in place means that instead of worrying about losing control of your ideas or sensitive info, you can focus on the exciting parts, like your amazing new world-changing piece of tech or that cash injection that will take your business to the next level! Signing a CA also shows you’re committed, mean business and take confidentiality seriously. It can also encourage open communication as people feel more comfortable sharing their sensitive info if they know it’s protected.

However, to gain these benefits, you need a well-drafted CA that clearly sets out its purpose and scope and is enforceable in NZ.

Key points

Confidentiality agreements protect your ideas, designs, prototypes, financials and other commercially sensitive info, and allow you to press ahead with the exciting discussions without fear of compromising your business. Whether you're selling up, collaborating on the next game-changing piece of AI, or bringing new investors on board, get the confidence to take that leap with the right protections in place.

On Your Terms wants all kiwi businesses to gain peace of mind, protect their revenue and ideas and build great business relationships. By providing free legal resources and affordable, convenient legal documents, we support smaller businesses to succeed with confidence. As part of this, our Mutual Confidentiality Agreement and One-way Confidentiality Agreement are available for free.  

On Your Terms helps kiwi businesses gain peace of mind, protect their revenue and ideas and build great business relationships. By providing free legal resources and affordable, convenient legal documents, we support businesses to succeed with confidence.