What is a non-disclosure agreement (NDA)?

A non-disclosure agreement (NDA) is a legal contract that outlines confidential information and binds the involved parties to protect that information. Signing an NDA establishes a confidential relationship between parties with clear expectations of secrecy and consequences for violation. Simply put, the purpose of an NDA is confidentiality and protection.

NDAs are also known as confidentiality agreements (CAs), confidential disclosure agreements (CDAs), proprietary information agreements (PIAs), and secrecy agreements (SAs).

Types of NDAs

Mutual non-disclosure agreement (NDA)

This NDA type, also known as bilateral or two-way NDA, applies when both parties disclose confidential information about their respective operations and agree to protect each other’s sensitive information.

Non-mutual non-disclosure agreement (NDA)

This NDA type, also known as unilateral NDA, applies when only one party receives the confidential information and is bound to protect it.

Multiparty non-disclosure agreement (NDA)

This NDA type, also known as multilateral NDA, applies when three or more parties are involved and at least one of them discloses information to the other parties. Multilateral NDAs eliminate separate bilateral or unilateral NDAs between two parties in a multiparty collaboration.

Elements of an NDA

Even though the nature and scope of NDAs vary based on the circumstances, regions, and involved parties, there are common essential elements to any non-disclosure agreement, which we explain below.

Declaration of parties

Start your NDAs by establishing the disclosing and receiving parties to the agreement. The disclosing party in the individual or entity sharing the confidential information, and the receiving party is the individual or entity receiving the information and is obliged to protect it.

Definition of confidential information

Be specific about the confidential information of concern and why it’s shared. Set out a clear scope of confidentiality by including all pieces of information, materials, and documents that fall within the range. This helps to stand your ground in the event of a legal dispute.

Legal obligations to disclose

While outlining all obligations for the receiving party, ensure your NDA includes a clause stating that “disclosing the confidential information on a legal compulsion is not a violation of the agreement.” This protects both parties in instances where disclosure is unavoidable, e.g., during legal proceedings, where recipients are demanded to disclose the information by the government or courts.

Exclusions to NDAs

In some cases where a piece of information is common knowledge or already publicly known, you must consider excluding them from the NDA. Also, information that can be rightfully obtained via independent research or from a third party shouldn’t be defined as confidential.

Breach of contract

Either intentionally or as an oversight, recipients may fail to fulfill the obligations promised in an NDA. It’s important to include the consequences of a breach of confidentiality and the remedies to the affected party in your NDA.

Term of NDA

Like every other contract, NDAs should clearly state their duration of validity. This term depends on the nature of business, transactions, and information.

Frequently asked questions

  • What information is protected by an NDA?

    Companies can customize their NDAs in multiple ways to protect their information. Confidential information is often sensitive, technical, and commercial by nature. Generally, NDAs are used to protect information including:

    • Customer information
    • Personally identifiable information
    • Financial information
    • Intellectual property
    • Business ventures
    • Trade secrets

  • What happens if you break an NDA?

    Because non-disclosure agreements are legally enforceable documents, the consequences of violating them can be severe. If a breach of confidentiality is proved, the discloser can be subjected to legal penalties, burdensome financial costs, and employment termination.

  • How long does an NDA last?

    NDAs are applicable for the period specified and agreed upon by the involved parties. Generally, NDAs last from two to five years. Companies also enter into indefinite NDAs depending on the information that needs to be kept confidential.

  • When should you use an NDA?

    An NDA is used when disclosing confidential information related to business, creative endeavors, product ideas, or personal matters to counterparties. The recipients can be employees, contractors, potential investors, or prospective business partners.

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