Should You Sign an NDA? What to Check Before You Do

Why you’re being asked

A company about to show you its product, numbers or plans wants a written promise first, and many businesses require one before any detailed conversation. Being asked isn’t an accusation. Signing a fair NDA usually doesn’t limit you beyond what you’d do anyway: not leaking or misusing what you’re told.

So the questions are whether this NDA is fair, whether it fits what will actually be shared, and whether it slips in promises that have nothing to do with confidentiality.

The basics to check

Start with the terms that shape everything else:

• The parties. If you’re signing for your company, the company should be named as the party, and you should have authority to sign for it.
• Mutual or one-way. If you’ll be sharing anything sensitive too, ask for a mutual NDA, since a one-way NDA protects only the discloser’s information. Mutual vs. one-way NDAs explains the difference.
• The purpose. It should describe the actual discussion, because it limits how you may use what you learn.
• The term. One to five years is common for ordinary business information, with trade secrets protected for as long as they stay secret. See how long an NDA should last.
• Governing law and venue: which state’s law applies, and where you’d have to go to court.

The definition and the exclusions

The definition of confidential information decides how far the NDA reaches. A reasonable one covers information that’s marked confidential or that a reasonable person would understand to be confidential. A definition that sweeps in everything you hear, however you heard it, can leave you unsure what you’re still free to use.

Then look for the standard exclusions. Without them, you could be accused of breaching the NDA by using information you already had. A fair NDA doesn’t cover information that:

• is or becomes public through no fault of yours;
• you already knew, without restriction, before they shared it;
• you rightfully receive from someone else who has no duty of confidentiality;
• you develop independently, without using their information.

Clauses that deserve a second look

These aren’t always wrong, but each goes beyond keeping a secret. Understand them before you agree:

• Non-compete or non-solicitation. A promise not to compete, or not to hire their people or approach their customers, is a much bigger commitment than confidentiality. See NDA vs. non-compete.
• Ownership of ideas or feedback. Some NDAs say that anything you suggest, or anything you develop after seeing their information, belongs to them. That can reach your own work.
• A fixed payment for any breach, known as liquidated damages. Courts generally won’t enforce one that works as a penalty rather than a reasonable estimate of the harm, and the rules vary by state, but you don’t want to be the test case.
• Legal fees or indemnity. A clause making you pay their lawyers or cover their losses raises the stakes of any disagreement, especially if it only runs one way.
• No end date for ordinary business information.
• Limits on reporting. Federal law protects certain reports of possible violations of law to government agencies, and a well-drafted NDA says it doesn’t prevent them. Be wary of one that seems to.

If you already work on something similar

This is the main reason large companies and many investors decline NDAs for early conversations: they may already be building something like what they’re about to hear, and an NDA could make it harder to show later that their work was their own.

If that’s your situation, say so before you sign. Keep dated records of your own work, make sure the NDA excludes information you already had and information you develop independently, and think about whether you need to hear the details at all.

Asking for changes

Asking is normal. Be specific: name the clause, say what you’d change and why. Common requests are making a one-way NDA mutual, adding the standard exclusions, shortening the term, narrowing the purpose or striking a non-solicitation clause. For anything high-stakes, like an acquisition, a large investment or an NDA with unusual clauses, have a lawyer read it before you sign.

Another option is to propose a neutral standard instead. FastNDA’s template is balanced on purpose, and anyone can read every word first. You can even send it yourself: choose one-way and answer “They are” when asked who is sharing, and the other side becomes the discloser.