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DuPage County contract attorneysOne of the most important parts of owning a business is forming beneficial relationships with other entrepreneurs and businesses. In an ideal world, these relationships could be casual, but handshake agreements are not always honored. Informal business agreements can quickly go south and result in damage to your business’s bottom line. Business agreements involving another party should be formalized in writing. One such agreement is a non-disclosure agreement, or NDA. Non-disclosure agreements are often essential to protecting a company’s professional interests and continued success.

How Does a Non-Disclosure Agreement Work?

Non-disclosure agreements are a type of confidentiality agreement used to prevent sensitive company information from being shared with other parties. An NDA is a legally binding document which can be used in a variety of situations, most often during proposed or pending business transactions. A company may choose to use an NDA during the sale or purchase of a business, a merger, or during any other conversation in which privileged information is being shared. When discussing a possible merger, for example, the other party will learn information about your business which you may not want shared with anyone else. Allowing news of the merger to reach other businesses or even the press may not be in your best interest. In this example, an NDA can be used to ensure that the other party does not divulge company information to others.

The Two Main Types of Non-Disclosure Agreements

The most common types of non-disclosure agreement are one-way agreements and mutual agreements. A one-way NDA is also called a unilateral NDA. As the name implies, one-way NDAs only bind one of the parties to confidentiality. A unilateral NDA may be useful in preventing potential investors from revealing your business’s information to other people or companies. If you use a one-way NDA in this scenario, you do not have a reciprocating requirement to keep the potential investors’ information confidential. A mutual NDA, on the other hand, applies confidentiality requirements to both parties in a business transaction. A mutual NDA should be used when dissemination of either party’s information could adversely impact the business or the industry. Companies discussing the possibility of a merger most often use a mutual NDA.

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DuPage County business law attorneysBusiness owners often use non-compete agreements to protect their brand and trade secrets. Previously reserved for high-level executives, these contracts have even made their way into the “lower-income” sector. However, state law prohibits the use of non-compete agreements in some situations. Furthermore, such agreements must meet certain criteria to be considered enforceable by the courts. Where does your company stand on its use of “covenants not to compete?” The answer may surprise you. 

What is a Non-Compete Agreement? 

While non-compete agreements are not stand-alone documents, they do frequently make an appearance in other types of contracts, such as employment agreements and contracts for the sale or purchase of a business. Used to protect things like a company’s trade secrets, marketing tactics, client or customer data, and other sensitive business information, they prohibit the signer from working in a specific industry, trade, or geographical location. It may also prohibit the singer from working with specific competitors (prospective employers). 

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Illinois business law attorney, Illinois employment lawyer, Illinois business lawyerIf you are running a business and have a product or service that isn't offered elsewhere or is relatively unique, chances are you have considered a confidentially agreement. All businesses operating in an industry in which secret formulas or recipes could compromise the ability of the business to make a profit should have a confidentiality agreement in place with employees. It is best that this agreement is considered and signed before an employee begins work in earnest — any hesitation can lead to murky legal waters regarding the divulgence of company-specific products or services.

The reason that confidentiality agreements need to exist separation from patents or copyrights is because they, in large part, protect trade secrets. The difference between trade secrets and copyrighted products or processes is that a trade secret is considered intellectual property. Confidentiality agreements are implemented in addition to the protections afforded by copyright infringement laws, however, because trade secrets are intellectual property that is considered non-public. Laws regarding intellectual property are complicated to enforce and often confusing for both parties involved. Confidentiality agreements allow for some of this complication to be ironed out.

The importance of such agreements cannot be overstated. It is estimated that the theft of trade secrets costs the American economy billions of dollars annually. There are federal criminal laws, in large part monitored and enforced by the Federal Bureau of Investigation, to combat and punish such theft, but because of the wide scope of incident and the myriad of red tape that must be cut in order to prosecute such cases, these incidents are often best left to be handled by the parties involved. This is where confidentiality agreements come into play.

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