What is a Non Disclosure Agreement: Definition & Definitive Guide
What is a Non Disclosure Agreement? (NDA)
A Non disclosure agreement which is also known as NDA or Confidentiality Agreement is a binding contract that establishes a confidential relationship. In this agreement both parties who sign agree that the information they obtain won’t be made available to any others. Confidential information includes internal, sensitive strategies, trade information, proprietary information, future plans or goals, etc.
NDA are mainly used for business which enters into negotiations with other Organization also, this Agreement allows sharing any sensitive information with their partners without the fear of losing the data to a competitor.
As a business owner or an HR manager, you will come across NDA or a Non Disclosure agreement frequently. In simple terms, it is a legally binding agreement that protects sensitive information. One of the more common uses of an NDA is in employee contracts. This makes sure that the sensitive information of the company stays safe.
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By definition, A non Disclosure agreement is a legally enforceable contract that creates a confidential relationship between a person who holds some kind of trade secret and a person to whom the secret will be disclosed.
An agreement is a written contract that prevents the concerned parties from sharing sensitive information.
In simple terms, if you are an issuer of an agreement, then you are asking others to not share the sensitive information that you might reveal to them. If you are the one signing an NDA, then you are making a promise of keeping the shared information confidential.
The primary purpose of an NDA is to keep sensitive business information within the organization. Generally, agreement is signed at the start of a new business relationship. In certain scenarios, an agreement may also be signed when your business partner has decided to leave. Failing to comply with the conditions of the agreement can have serious repercussions, such as expensive lawsuits.
When Do You Need A Non Disclosure Agreement?
While running a business you will come across various situations where you will be required to share confidential information with some other business individual or a whole organization. This is where NDA comes into the frame when you want others to keep your information confidential you can use a Non-Disclosure Agreement.
This agreement is useful for several instances. It is a very versatile document that helps a company protect sensitive information. The information can range from marketing plans to product launches. This helps a company protect its information.
Non Disclosure Agreements are often used when two or more parties are officially working together. This includes partnerships, employment, investors, and more.
NDAs are often signed before an investor invests in a company to keep both their trade secrets safe.
Overall, NDAs are used to keep plans secret. This includes information about customers, manufacturing processes, and much more. It is an important legal framework that is used to protect information. This document is very important to keep companies and startups safe.
Furthermore, having an NDA signed between parties can also build trust between them and can bring more ease in the negotiations. This means that the likelihood of theft of intellectual property will be less.
So now the question would be when you should sign it? Particularly speaking when you don’t want the other party to use your secret business information or strategy without your concern, then you can sign an NDA.
The following are some of the situations in which NDA would be preferred:
1.The technology and strategy used in building a product
2. Deals and agreements details to an investor.
3. When an employee or staff have secret key information about the business
4. Sharing of companies future plans with suspicious buyers
5. Blueprints of upcoming Projects
6. Freelancers who work with the organization on a project basis.
7. Cost of producing a product, place from where raw materials are brought. etc.
8. While pitching a new business idea or an invention with potential investors, shareholders or partners.
9. Employing an employee, vendor, client, etc
10. Showing a new product to a prospective buyer or license
11. Receiving service from a third party organization
As a business owner, you will often need to share proprietary or sensitive information with individuals within or outside your organization. This information can help you to hire key employees which suit your company, lead to new business partnerships, and lure in attractive business investments.
An NDA can be signed between potential employees, clients, contractors, or even investors. These agreements will help you to keep a lid of any kind of sensitive information which gives you an edge over your competitors. also. these might include any new and innovative projects that your organization is working on, secret recipes, new products, blueprints, and similar kinds of intellectual property.
Benefits of Non Disclosure Agreements
Signing an NDA can be beneficial for both parties.
1. It is a legal document created to protect information. If any company infringes it, they are legally liable to compensate for the damages.
2. In NDA clearly mention what information is confidential and what is fair play.
3. It adds a layer of trust in negotiations since both parties are less likely to leak information.
4. It protects intellectual property from being stolen.
Non Disclosure Agreement Format
Two Types of NDAs
Here one party agrees to not disclose information given by the other party. These are very common in everyday lives. For example, contracts with employees, clients, vendors, etc.
This type of agreement means both parties agree to not share sensitive information about each other. This type of Neef Non Disclosure Agreement is usually used when companies form partnerships, collaborations, mergers, etc.
How to Write Non Disclosure Agreements (NDA)
An NDA has some predefined clauses that must be included. Let’s take a closer look at the 10 most important clauses in any confidentiality agreement.
1. Definition of Confidential Information.
This clause spells out the information that must be kept confidential. As simple as that sounds, many NDA’s have ambiguous definitions of what makes up “privileged information“. This clause specifies the exact nature of information, as well as the format of that information.
Conversations through documents, emails, calls, written notes, etc must be specifically stated. A good NDA will cover all loopholes.
2. The Parties
The specification of parties constitutes the disclosing and the recipient parties. It also includes clauses about sharing the information with third-party vendors. In most cases, the recipient parties have their own employees and outsourcing vendors. This clause must detail the scope of sharing sensitive information directly as well as indirectly.
3. Confidential Information
Once the parties have been established, they should specify what the confidentiality agreement should protect all confidential information.
The Following are the examples of NDA-protected confidential information:
Internal Trade Secrets
1. Special blueprints
4. Software development
5. Product as well as technical designs
6. Customers list & Data
7. Registered Patent
1. Affiliate Networks
2. Partnerships Details
4. Property details
6. Yearly Audits
7. Marketing & Advertising
8. Pricing module
9. Business as well as financial statements
1. Web-series, TV, Movies Productions,
2. Social Media Strategies, Graphic design, UI / UX Designer.
3. Influencer deals, Marketing Plans
These are some of the examples of things you can keep confidential under the protection of NDA. also, you can add as many or very few things to this list that matters to you the most. In the same agreement, you have to be very specific about the things you want the party not to disclose,
When you are specific about what NDA protects information, you can use it in the court at the time of legal Actions.
4. The Terms and Duration
Timeframes are of crucial importance in a NDA. If a piece of information has to stay confidential, the contract has to specify a time limit (either in months or years). There is no predefined threshold for this time, as some agreements may only last for a few months (until a product is launched to the public) whereas others might last for years (such as a secret recipe). Both parties have to be fair to each other with respect to the time frame.
5. The Permitted Use of Information
This clause highlights the permitted usage of the sensitive information shared. An NDA has to be very clear and unambiguous when stating this clause. This section has to include the exact reason for sharing the information with the concerned party, and in what capacity it can be used.
It also has to specify what the recipient party cannot do (duplicating an idea, for instance) with the provided information.
6. The Legal Obligation to Disclose
In certain exceptional situations, the recipient party may be legally bound to disclose the information which was included in an NDA agreement. These situations may arise due to the intervention of a government entity, courts, and so on. An NDA has to include a clause stating that the disclosure of sensitive information in such cases is not a violation of the agreement.
However, this section may include conditions, such as the recipient party has to notify the disclosing party beforehand.
7. The Return of The Information
At the end of the NDA period, the information that was shared with the recipient party has to either be returned or destroyed. This particular clause should specify exactly when and how confidential information can be returned to the disclosing party.
Information stored electronically can often be retrieved after deletion. In such cases, an NDA must clearly state such information cannot be shared/used in the future.
8. The Jurisdiction
Even with a thorough as well as strong agreement, both parties must be prepared for a breach in the contract or some form of misunderstanding. In these cases, your NDA agreement has to specify a clause that will specify the court jurisdiction of any legal action.
This section must not be overlooked, as it can be the difference between settling a dispute or making it worse.
9. The Remedies
Just like a jurisdiction clause in an NDA, the remedies clause is used to specify the possible solutions or compensation, in case a breach of information occurs. This clause is meant to explicitly state the rights of the disclosing party. However, it can often be hard to estimate the cost of a data breach.
It is advisable that both parties agree to what constitutes a “fair remedy” upfront, to prevent further disputes later.
10. Responsibility For Legal Fees
The agreement must also have a clause which details the party/parties who will be covering the legal fees, in case of a lawsuit. In some cases, the disclosing party bears the entire fee in case of a lawsuit. However, such contracts might give unfavorable advantages to one party, or might give them incentives to file trivial lawsuits.
It is considered a best practice to discuss this clause upfront. This clause might also state that each party would bear its own legal fees, irrespective of the outcome.
11. The No-Binding
Every agreement has to include a no-binding clause. Most agreements are initiated prior to the start of a project, a collaboration, or a partnership. In simple terms, an agreement must give both parties a chance to withdraw from the agreement at any time, provided they fulfill your contractual stipulations and obligations. NDA’s generally don’t signify a permanent relationship between the binding parties.
The NDA which you made needs the signatures of all the parties involved.
Signature of the following are must: Directors, Employees, officers, agents, partners, legal advisors, or any person who knows about the thing included in that specific Non Disclosure Agreement
The following are the details you will find in Disclosing Party’s signature section:
1. Disclosing party signature
2. Disclosing party full name
3. Disclosing party representative full name.
4. Disclosing party representative title
5. Disclosing party representative signature
The Key Elements of Non Disclosure Agreements
The following examples cover a few of the most common confidential relationships which call for an NDA:
1. Employee NDA
As an employer, you have to take certain precautions to protect your business. Signing an NDA will require that your employees agree to not share or misuse your company’s sensitive information, and maintain its secrecy. Here are a few reasons why you should sign an NDA with your employees.
1. To prevent a possible loss of sensitive information- When an employee leaves your company, they may take your business strategies as well as secrets with them. An NDA will place a legal obligation on your employees to not share this information even after they resign.
2. Psychological deterrent effect- Your employees are far less likely to disclose sensitive information if they can get sued for it. Even if you never intend to file a lawsuit against your employees, this precaution will help you to safeguard your business.
3. Clarify intellectual property ownership rights- If your employee’s come up with a new idea or an innovation, they are the default legal owners for it. However, if the employee is hired with a specific role to come up with a new innovation using your company resources, then you (the employer) will reserve the proprietary rights. Signing an NDA in such cases helps to clarify that any IP ownership is automatically transferred to you.
Non Disclosure Agreement Format: Employee & Interview NDA
2. Interview NDA
An interview candidate’s NDA, also known as an interview confidentiality agreement also, helps you to protect sensitive information from a candidate who applies for a job position. Signing an NDA with your interview candidates will help you to do the following:
1. Protect your trade secrets from high-level candidates or experts working with your company’s data as well as programs.
2. Allow you to hire candidates for positions where sensitive information needs to be discussed.
3. Allow you to be more open, honest, as well as thorough with the interviews, which will enable you to find the best candidates for the specific job roles.
3. Trade Secret NDA
Businesses often have to maintain valuable data such as customer plans, manufacturing processes, or even secret formulas. An inventor NDA will help you to do the following:
1. Ensure that your trade secrets stay safe, even after your employees resign.
2. You can ensure that your trade secrets are not unfairly duplicated, deviated, and also misused in any form.
3. It gives you a legal recourse in case your trade secrets are divulged. It also helps you to maintain proprietary rights.
4. Unilateral NDA
A unilateral NDA is used when you, as an employer, need to share privileged information with an outside recipient party. This NDA is a simple, one-way agreement to protect only what you disclose. A unilateral non-disclosure agreement will be beneficial to you in the following cases:
1. When doing a business transaction with an outside party that involves revealing sensitive information. Also, this might include financial statements, product secrets, or new innovations.
2. When you are certain that you are never going to receive confidential information from the receiving party.
3. You are doing a simple, straightforward business transaction and also avoid unnecessary complications in an NDA.
5. Bilateral NDA
A bilateral NDA is also called a mutual NDA, or a two way NDA. This type of a non disclosure agreement is used when two parties are involved in a mutual disclosure of information. Meaning that you, as an employer, both will be divulging sensitive information and will be receiving it from the other party. A bilateral NDA will be beneficial to you in the following cases:
1. When you are looking for a business partnership, a joint venture, or a merger.
2. If you anticipate that your receiving party might need to disclose sensitive information to you at some point in the future. This is a common occurrence in practical scenarios.
3. If you wish to make the provisions of the NDA “fair and balanced”.
6. Multilateral NDA
A multilateral NDA comes into the picture when more than two parties are involved in the transaction and at least one party will disclose this information to the other two parties. A multilateral NDA would be beneficial to you in the following cases:
1. If you wish to avoid separate, ambiguous NDA’s with different parties.
2. When your receiving party might need to disclose sensitive information to other third parties.
3. When all the parties wish to review, implement, and execute the same agreement, and offer fair deals.
Mistakes to avoid while creating your Non Disclosure Agreement
NDAs are like any other contract and should be created with the details in mind. A few common mistakes that you should avoid while creating your NDA are:
1. Wrong Party Name
It is important to double-check the name of the parties on the agreement. You should check whether the name provided is the company’s legally registered name or trading name. Missing a simple “Pvt” can be a disaster.
2. Confidential Definition Too Broad
It is also important to make sure that your definition of confidentiality doesn’t include everything. Specific information that needs to be kept safe should be mentioned.
3. Information in The Public Domain
The purpose of an NDA is to keep information safe, therefore, an NDA covers information that is available in the public domain. For example, if an employee leaks a piece of information that is beneficial to a supplier, you cannot enforce an NDA on the supplier to not use that information.
4. Development of Information Before The NDA
If the receiving party developed the piece of information independently before signing the NDA then that cannot be included in the NDA as that will be seen as an independent piece of information developed by that party. For example, if your company is working with a company in a similar line of work and they’ve developed a product range or have made discoveries on their own then that cannot be included in the NDA.
5. Authority to Sign
Ensure that the person signing the agreement has enough authority to do the same. This can be done by including a simple clause mentioning it.
What Happens if Your Non Disclosure Agreement is Violated?
As mentioned above, an NDA is a legal document. Violation of it is the same as a violation of any contract. Therefore, if the contract is breached then one or the other party can go to court and seek compensation for the damages. Furthermore, the party that violated the agreement can be sued by the other parties.
If your NDA has been violated it is important to work quickly and find evidence of the same. Alternatively, it is also important to find evidence of who breached the contract and how the information was leaked.
There you have it, a complete guide to Non-Disclosure Agreements. NDAs are usually used to make sure the information shared is safe and also, If you are looking to create an agreement, check out the smart business box. Here you not only get ready to use the template.
of an NDA but also several other documents like business letters, business agreements, pitch decks and so much more.