Non-Disclosure Agreements: What Entrepreneurs Should Know

Whether you are freelancing, running a startup, or managing a small business in Boulder, Kansas City, or beyond, non-disclosure agreements (NDAs) play a critical role in protecting confidential information. These agreements safeguard sensitive business details from being misused or shared with competitors.

In Colorado, Kansas, and Missouri, NDAs are widely used across industries—from tech startups securing proprietary software to service-based businesses protecting client lists. Below are four key things to consider before signing an NDA. 

(You may also want to check out our guides on non-compete agreements and non-solicitation agreements, which are closely related to NDAs.)

1. Mutual or Unilateral

First, determine whether the NDA is unilateral or mutual:

• Unilateral NDA: Only one party is required to protect the other’s confidential information.
• Mutual NDA: Both parties agree to protect each other’s confidential information.

The choice depends on factors such as the bargaining power of the parties and whether both sides are actually disclosing sensitive information.

2. Non-Disclosure & Non-Use Obligations

The core element of an NDA is the obligation not to use or disclose confidential information. Most NDAs include these restrictions:

• No disclosure – The receiving party cannot share confidential information with third parties.
• No misuse – The receiving party cannot use confidential information for their own benefit.
• Reasonable protections – The receiving party must take reasonable steps to maintain confidentiality.

Most NDAs also allow limited disclosures to certain parties, such as attorneys and accountants, as long as those individuals also agree to confidentiality terms.

3. What Constitutes “Confidential Information”

Defining what qualifies as confidential information is crucial. Some NDAs state that all disclosed information is confidential, while others require it to be labeled as confidential. More commonly, NDAs include a broad definition, covering:

• Proprietary business information
• Client and vendor lists
• Trade secrets
• Financial data

Many agreements also include exceptions, such as information that is publicly known or obtained legally from another source.

4. Length of Non-Disclosure Obligations

The NDA should specify how long confidentiality obligations last:

• Short-term NDAs (one to five years) are common for discussions about potential business relationships.
• Ongoing agreements typically last through the duration of the business relationship plus an additional period (e.g., five or ten years).
• Trade secret clauses should specify that trade secret protections last as long as applicable state laws allow.

In some cases, perpetual NDAs make sense, but businesses should carefully consider the practical implications before agreeing to one.

Bonus Tip: Watch for Hidden Terms

Sometimes, NDAs include additional clauses that go beyond confidentiality, such as:

• Non-solicitation (restricting contact with employees or clients)
• Non-compete (preventing competition in the same industry)
• Intellectual property transfers (assigning ownership of ideas or work)

While these provisions may be appropriate in some cases, they are often better suited for separate agreements, such as employment contracts or client agreements.

Final Thoughts

NDAs are essential tools for protecting business information, but understanding their terms before signing is key. Whether in Boulder, Kansas City, or elsewhere in Colorado, Kansas, or Missouri, businesses should carefully negotiate NDAs to ensure they provide the right level of protection without unnecessary restrictions.

*This article is general in nature and is not legal advice.