A confidentiality agreement, or NDA, is the first document you sign in a relationship where sensitive information will be shared. Its role is to create a legal obligation not to disclose or use that information outside the scope of the discussion. But not every situation justifies an NDA, and in some contexts asking for one can even harm the relationship.
Knowing when to sign, when to ask for one and when to refrain is a useful practical skill for any business leader or founder.
Pre-contractual commercial discussions
Before entering into a significant commercial contract (distribution partnership, co-development agreement, outsourcing contract), the parties usually exchange information about their business, their technology, their organisation or their customers. These exchanges may justify an NDA if the information shared has real commercial value and is not meant to be made public.
The practical rule is simple: if you are sharing information you would not want to see in a competitor’s hands, that information deserves the protection of a confidentiality agreement before it is shared.
Should you sign an NDA when raising funds?
During a fundraising, founders share financial information, projections, customer data, and elements of technology and strategy with potential investors. This information is confidential by nature. Institutional investors often decline to sign NDAs at the early stage of discussions, on the grounds that they see many similar deals and that an NDA would create administrative complexity.
This practice does not mean that confidentiality should not be addressed, but that it will be handled in a different framework. Before entering a fundraising process, it is useful to understand what you can share without an NDA and what deserves formal protection.
NDAs in mergers and acquisitions (M&A)
In a sale or acquisition process, the NDA is in principle the first document signed before any data room is opened or any financial or operational document is disclosed. It protects both parties: the seller protects information about its business, the buyer protects its strategic intentions. In this context the NDA is generally mutual and often includes specific clauses on the non-solicitation of staff.
Technology and industrial partnerships
When two companies explore a technological or industrial collaboration (co-development, technology licence, access to proprietary data), the information exchanged may include know-how, technical data and manufacturing methods. A well-drafted NDA is essential before these exchanges, in addition to any protection that trade secrets law may offer.
Hiring strategic executives
When recruiting a senior executive or a person who will have access to highly confidential information from the selection process onwards, a confidentiality agreement may be justified. It covers the information shared during the process and may include a non-solicitation clause covering staff if the candidate already works for a competitor.
What an NDA does not do
An NDA creates a legal obligation but does not in fact guarantee that information stays confidential. It does not replace physical and technical security measures. It does not relieve you of the need to be selective about what you share and with whom. Its value lies in the deterrent effect it creates and in the remedies it offers in the event of a breach.
To find out more about drafting and negotiating confidentiality agreements, see our dedicated confidentiality agreement lawyer (in French) page.
For assistance: NDA lawyer in France.
