An NDA (non-disclosure agreement) is a confidentiality agreement and a binding contract in which one party agrees to provide sensitive information to another, with the latter agreeing not to share it with any outsiders. The agreement helps protect intellectual property (IP) and sensitive information by outlining that everything must remain private with zero release of any details to the public.
NDAs can cover products and services, test results, system specifications, sales figures, customer lists, etc. Leaking information listed in the NDA is a breach of contract.
The Four Elements of an NDA
- Identification of all participants
- Definition of the information considered to be confidential
- Duration of the agreement
- Exclusions from the confidentiality clause
Two Types of NDA
In this agreement, the party disclosing the information prohibits the recipients from sharing it with others.
In this type of NDA, both parties are prohibited from sharing confidential information with the external world.
Three Times to Use an NDA
Pitch to Investors
A business entity may want to have an NDA when pitching to investors, ensuring that any confidential knowledge or information shared about the business model does not get disclosed to other parties.
Whenever an organization signs a business deal with another entity, it discloses sensitive and critical information. An NDA will prevent the other side from revealing the information to outsiders.
Engagement with Other Parties
A business entity may engage with multiple investors, contractors, suppliers, researchers, and other service providers. All the parties may have access to confidential information that will require the involvement of an NDA to protect information from being made public.
Four Benefits of Signing an NDA
Confidence to Share Information
An NDA helps business organizations limit relationships and business opportunities if it is concerned about sharing significant information with other parties. It helps set out the information confidential to a particular party and the specified reasons for which the other parties may use it. The agreement also warns everyone about the legal consequences of leaking sensitive information.
Clarity on Confidential Information
The NDA enables all parties to define ‘confidential information.’
Limits Reasons to Share Information
A business entity may provide confidential information to another party for multiple reasons. A benefit of using the NDA is that the organization can limit the reasons the recipient can use the information in the future. The organization can also specify the limited circumstances under which the information can be shared with others.
Set the Consequences of Disclosure
An NDA helps set a specific party’s expectations about protecting confidential information. It also enforces the legal consequences of disclosing the information without consent, limiting the likelihood of anyone leaking it for their internal benefit.
Eight Steps in Writing An NDA
Disclosing and Receiving Parties
One party is the ‘disclosing party,’ the individual or group sharing the information. The other party is the ‘receiving party,’ who receives all the information. In mutual NDAs, both parties serve as disclosing and receiving parties.
The next step is to specify what confidential information or knowledge either party wants to protect from being disclosed. The NDA specifies all information to be kept confidential. Secret information can include trade secrets, affiliate details, audits, creative endeavors, web designs, formulas, patents, etc.
Exclusions from Confidentiality
The parties must have an ‘exclusions’ clause that defines the information not protected by the NDA. For example, such information may consist of details already disclosed in the public domain, details the other party is already aware of before the NDA, independently developed or discovered information, and information the disclosure party has authorized the receiving party to share with others.
The parties must include the ‘non-disclosure’ obligations that comprise multiple clauses everyone must follow during the deal or agreement. This section will contain all necessary information for maintaining the confidentiality and other provisions mentioned by either party.
Termination or Time Frame
The next step is to mention how long the NDA will remain in effect. The time frame will include the promise to keep all confidential information a secret, beginning with an ‘effective date.’ The parties must also list the length of time the information remains protected by adding the ‘disclosure period.’
Another clause included here is the ‘termination’ provision that specifies the end of the agreement term.
The parties must include the ‘jurisdiction’ clause at the end to establish which state’s laws will govern the confidentiality agreement. It must specify the lawsuit that may ensue if either party releases any confidential information inappropriately.
Finally, the NDA must include a ‘signature’ section for all parties and their respective representatives, such as officers, employees, directors, advisors, or agents who may receive, share, or protect the information in pursuit of the specified transactions.
Parties may consider adding additional clauses to the NDA depending on the nature of transactions, relationships, and other specified information. No license, remedies, severability, and amendments are clauses that may be included in the agreement.
An NDA involves two or more parties entering a mutual contract to avoid disclosing vital and sensitive information to others. Significantly, the agreement does not miss out on any clause to avoid leaking details. That is why the concerned parties must know how to draft an NDA efficiently.
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