Many business owners may prefer to have their employees sign a non-disclosure agreement. However, this document may not always be necessary. People need to understand when they truly need this agreement.

A non-disclosure agreement protects a company’s sensitive information. According to Forbes, this document identifies the confidential information and lays out terms that people have to follow. Instead of asking all the employees to sign this document, people may want to save this agreement for certain circumstances.

Information sharing

Entrepreneur magazine says that companies need a non-disclosure agreement when they bring on a new investor or business partner. Additionally, people need an NDA if they consider selling the company. Potential investors, partners and buyers usually need to understand all the details before they decide whether to move forward with the company. This means business owners have to explain the finances of the business, as well as company secrets. In this situation, people need to ensure no one will share the company’s private information.

Potential licensing

If companies have a product they want to license, they may meet with numerous people. The licensing company may also work with many companies. Business owners need an NDA to make sure the licensing company does not reference any of their information during other negotiations. In this situation, a non-disclosure agreement ensures that only the licensing companies learn the fine details about the product.

New clients

Sometimes business owners may work with companies that collect sensitive data. In this situation, it can be beneficial for both companies if they sign a non-disclosure agreement. This ensures that private information for both companies is safe.