When it comes to electronic data storage and sharing not all solutions are created equal. Traditional cloud storage solutions simply don't offer the high level of security that's needed when sharing sensitive documents, such as intellectual property, a company’s private financial data, or personal information. For this reason, many businesses opt to store and share their digital files using a virtual data room or another secure file solution that goes above and beyond to provide enhanced and innovative security features. As a result, companies are able to enjoy greater peace of mind and confidence that their files are safe.

So, how do the best secure file sharing systems actually work when it comes to protecting sensitive information? This article explores some basics and best practices around secure file sharing and the various solutions businesses use to facilitate the process.

What is Secure File Sharing?

Secure file sharing is the act of sending documents digitally in such a manner that protects the shared information from being accessed by unauthorized users. Sharing files securely is most important when businesses need to ensure that confidential data can be shared only with select individuals or groups who have a legitimate reason to access this sensitive information. 

Secure file sharing is typically accomplished through a combination of security protocols that encrypt the data and require individuals to enter passwords or other information before accessing the files.

Some common use cases that require businesses to share files securely include financial transactions like mergers and acquisitions, fundraising, IPOs, and other events where companies must send private information to outside parties.   

Types of Secure File Sharing Systems

There are plenty of secure file sharing systems to choose from with varying features, security protocols, price points, and ideal use cases. Here are some of the common solutions businesses use for secure file sharing based on specific needs and requirements. 

Virtual Data Rooms (VDRs)

Virtual data rooms are secure online platforms most often used to facilitate a company’s financial transactions, including things like fundraising rounds and M&A activity. VDRs are considered the most secure file sharing solution, and typically include additional features and functionality specifically designed with financial deals in mind. Virtual data rooms also offer the greatest amount of granular access control when sharing documents.

Basic Cloud Storage/Sharing Solutions

Cloud storage solutions are similar to virtual data rooms in many ways, but typically come equipped with fewer security features and aren’t always recommended for sharing confidential company information. While they often lack the robust functionality and precise control that company’s look for when sharing private information, cloud storage tools can usually be implemented for little to no cost.

Peer-to-peer (P2P) networks

P2P file sharing involves the use of software that enables computers to communicate directly without hosting files on a central server. This is one way to transfer files between a small group of users on their own network connection.

File Transfer Protocol (FTP)

FTP is a common way of moving large files from one place to another. Users select the files they want to share and add them to the FTP interface. On the receiving end, users can then access the files from the FTP server site after entering a password if required.

Secure File Sharing Features

Every type of file sharing system comes with a different set of security features to protect your sensitive data. Here are some of the security features to look for during your search for the appropriate solution.

Technical Security

Technical security features refer to those that are built into the service's software and coding itself. These include data encryption, 2-factor authentication, and permissions management.

Data Encryption

Data encryption is one of the most essential types of security to look for when researching secure file sharing systems. Essentially, the purpose of data encryption is to render sensitive information unreadable through the use of a special algorithm. Data encryption ensures that only authorized users or computers are able to view the decoded versions of your files. This way, in the event of any kind of security breach or hack, the perpetrator only sees the encrypted version of the file and is thus unable to extrapolate any sensitive information out of it. Interestingly enough, data encryption was first used to share sensitive government and military data over the internet securely; today, it's used in file sharing and even online credit card processing.

2-Factor Authentication

In simplest terms, 2-factor authentication refers to a process where additional steps are taken to verify a person's identity before allowing them to complete a specific action. It can be helpful to look at a common real-world example of 2-factor authentication in order to gain a better understanding.

Think about the last time you went to withdraw money from an ATM. You inserted your card into the machine, but before you were able to withdraw money or take any other actions with your account, you were asked to enter a PIN. This is an example of 2-factor authentication at work. Theoretically, anybody could gain access to your bank card (whether by stealing yours out of your wallet or by making a copy), but it's likely that you're the only one who knows your ATM PIN. 

2-factor authentication in a secure file sharing system is similar. Typically, it will involve having authorized users pass through two different types of identity verification before letting them access any files on the shared network. For example, in addition to entering a correct username and password, a user attempting to log in may also need to complete a mobile identification step where a unique code is texted to the phone number associated with that username. Only by entering this unique code will the user be able to continue the process of logging in and accessing any of the files within the secure system.

Permissions-based User Roles

Permission-based user roles make it possible for system administrators to control who is able to access certain folders and documents. There are situations where a user may only need access to one document or one folder related to a certain task or project. With permissions management, it's easy to designate specific levels of access with just a few clicks. 

The ability to set varying levels of user access is important because it bolsters data security and ensures that sensitive information doesn't fall into the wrong hands—even within the organization. This can especially come in handy for larger companies where different departments may need access to different aspects of the data.

Human Security

In addition to technical security features, there are also a number of human-based security features that are worth exploring. Human-based security is important because in many security breaches, the problem isn't caused by a random person hacking their way into the system. Breaches are often the result of an individual giving access to an unauthorized user, printing out or sharing files, or not being careful enough with their passwords. In this sense, as much as technology security matters, human security features are perhaps just as important.


Digital watermarks can be either visible or hidden on a document. The purpose of adding visible watermarks to an electronic document is to remind the person viewing the document that the information is sensitive and that unauthorized copies are not permitted, and that the information should not be shared with any unauthorized users. This helps to deter any intentional or even unintentional sharing of information.

The watermark itself may contain personally identifiable information so that in the event that the document is printed or shared without authorization, it's easy to determine the source of the leak. 

Download/Printing Control

Much like administrators may be able to control which users are able to view and/or edit certain documents or folders, this added security feature also makes it possible to control who is able to download and print certain documents. Specifically, administrators have the ability to mark certain files or folders as View Only to specific users, which means they're only able to open the document; they are unable to print it, edit it, or even download it.

Audit Logs

Common in virtual data rooms, audit logs provide a detailed record of all activity from all users within a given data room, including:

  • Dates and times logged in

  • Actions taken within the platform

  • Files accessed

  • Any edits or changes made

The purpose of audit logs is to help administrators find out exactly what users are doing with documents and other potentially sensitive information while they're logged into the platform, providing complete visibility and added peace of mind. For example, an audit log could pick up instances where multiple failed log-in attempts were made to a certain user's account. This could make administrators aware of a potential security threat or attempted breach. Furthermore, if unauthorized changes are made to a document, an audit log will be able to determine which user made these changes and may even be able to help revert those changes back.

Audit logs play a vital role in increasing accountability within any virtual data room. If users know that activity is being logged, they understand that their actions are traceable and will act accordingly. Additionally, audit logs also give administrators the tools and information to gain a better understanding of how data and files within the virtual data platform are being used.

Secure File Sharing Tips for Businesses

Here are some tips for selecting the right secure file sharing solution and sharing your sensitive files responsibly.

1. Determine your use case and needs

Every business has different needs when it comes to file sharing. Sharing confidential documents during the M&A due diligence process requires a much more robust, secure file-sharing platform than sharing employee headshots for the company website.

2. Find and compare solutions that align with your requirements 

Once you’ve determined exactly what kinds of documents you need to share and how critical it is that the information remains confidential, you can start comparing solutions that match your needs.

3. Consider whether free solutions are the right fit

Free cloud storage solutions are common tools used by businesses around the world, but they aren’t the right fit for every situation. If the files you’re sharing could cause major harm to your company if they fell into the wrong hands, consider paying for a service that offers the enhanced security features you need to feel comfortable that you’re protected. 

4. Only share files that need to be shared

If someone has a legitimate need to review three of your company files, only send them those three files. It might be tempting to provide a trusted source with full access to all of your information, but this only increases the chances that more of your information falls into the wrong hands in the event of a leak or breach.

5. Use complex passwords whenever possible

When you use a service that requires you to set a password for the recipient of the files, be sure to set a complex password that meets the standard recommendations for password length and character type. This will help ensure that even if someone gets access to your shared file, they won’t be able to easily guess the password.

Just about every business has secure file sharing needs. By understanding the basics and finding taking advantage of the right solutions, you can protect your business by reducing the risk of your sensitive data falling into the wrong hands.

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