Everything you need to know about Non-Disclosure Agreements

A Non-Disclosure Agreement (NDA) is a legally binding solution for protecting information. Remember a situation where you were asked to keep a secret? Or furthermore, when you have told a secret to someone else. In terms of business, your private information, clients and vendors are crucial assets. To safely share information with other parties respect for confidentiality is essential. That’s where an NDA is of great importance.

An NDA is a contract signed by two or more parties that are involved. In a partnership, there will be a person who holds a trade secret and the person to which the secret will be disclosed. The principal objective is to ensure that all parties can work together and trust that the information shared won’t be disclosed to others or used by the recipient outside of the partnership. This last obligation is especially useful if the information disclosed revolves around inventions or ideas that can be stolen and used by other persons.

These agreements can be unilateral or mutual. A unilateral agreement exists when there is one party that shares confidential information that the recipient is required to keep secret. A mutual agreement is made when both parties are meant to maintain the confidentiality of each others’ sensitive data.

“To keep your secret is wisdom, but to expect others to keep it is folly”

– Samuel Johnson

Why the NDA Matters?

Many businesses handle information that could potentially be an advantage over other competitors. This information, whether it is schematics for a new product, client information, sales marketing plan or unique manufacturing process, is a valuable resource for the company. Non-Disclosure Agreements are signed to guarantee this information will be kept confidential.

A Non-Disclosure Agreement establishes which kind of information is private. The objective is to legally protect the information’s owner in case the secrets are revealed. At the same time, a Non-Disclosure Agreement forbids the receiver from using this information on their own.

After defining which kind of information is confidential, both parties will be protected. The NDA looks after the owner of the information by subjecting the receiver to lawsuits and penalties if they use or divulge it. And the receiver, who could be an employee, consultant, vendor, will also acknowledge the confidentiality of the information before having access to it.  

Non Disclosure Agreement

When Do We Use It?

Discussing a Non-Disclosure Agreement may sound much more complicated than it actually is. In fact, these agreements are as useful as they are common in our daily life. We usually encounter them as small sections contained within larger documents, generally labelled as “Confidentiality” or “Non-Disclosure”.

All individuals have information that could be considered private and confidential such as test results, customer lists, and personal passwords. Professionals within branches of all kinds of industries establish Non-Disclosure Agreements. Daily, specialists like your doctor or attorney have an implied Non-Disclosure Agreement with you. You may have heard the terms ¨doctor-patient confidentiality¨ or ¨attorney-client privelege¨ before. Even your librarian shall not divulge what kind of books you read.

Just as you have your private personal information, companies also have the information they wish to have protected. A wide range of information is kept as private, from the special recipe to make a dish, the process to manufacture supplies more cheaply, to potential future business plans. When a company hires employees, contractors or collaborators to work on projects that require the knowledge of sensitive materials, they need these parties to sign a guarantee of confidentiality.

By signing a Non-Disclosure Agreement, the recipient becomes legally bound to respect the confidential information and not use it to the owner’s detriment. If this agreement is broken, the recipient may be forced to pay a sizeable penalty and in some cases may even face more severe legal action.

It is really useful for you to consider a Non-Disclosure Agreement if you are about to;

  • Present an invention that has not been patented to an investor
  • Share financial information or marketing strategies with a potential buyer of your business
  • Assign tasks to clients, partners or employees where they will have access to confidential information of your business
  • Present a business idea to a partner
  • Show a new product or technology

When to use an NDA? Infographic.

How to Write an NDA?

When you identify the information you are about to disclose that needs to be protected by a legally binding solution, you will also need to acknowledge the four basic elements of a Non-Disclosure Agreement:

  1. Identification of the parties: As the majority of the NDAs are based on a template, this first part of the agreement is quite simple. Usually, the parties are named as “disclosing party” and “recipient”. In special cases, a third party might be mentioned, such as other companies affiliated or related to either the disclosing party or recipient.
  2. Definitions of confidential information: This element brings clarity to the agreement. The disclosing party has to be precise about the subject of the information that the NDA aims to protect without revealing too much detail. At the same time, non-confidential information such as information in the public domain or that which is developed by the receiving party shall be excluded.
  3. Obligations from all involved parties: This aspect outlines the duties of the receiving party regarding the maintenance of confidentiality of the information provided and the restriction of access to third parties. Nevertheless, along with this element of the agreement, the NDA must acknowledge that the obligations won’t apply if a court orders it.
  4. Established Time Periods: This element establishes two time periods of the agreement. First, the date of disclosure of the information, which is usually when the parties start the collaboration. Second, the time period through which the recipient must keep the disclosed information private. This period typically ranges between one and five years. The way to determine this period is determined by the kind of information being disclosed and when its privacy will potentially become irrelevant.

ContractAwesome provides free NDA templates that you can use to create, send and sign Non-Disclosure Agreements completely online!