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A non-disclosure agreement, or NDA, protects your business by establishing a confidential relationship with another party, such as a contractor or potential investor.
With a signed NDA, your business can discuss, collaborate, hire, and pitch ideas without worrying about the other party passing on any sensitive business information you share.
What Is a Non-Disclosure Agreement?
A non-disclosure agreement (NDA) is a legal contract used by businesses or individuals to protect confidential business information.
It is legally enforceable and establishes a confidential relationship between two parties—similar to the relationship between a doctor and a patient or an attorney and a client.
The parties of an NDA can be an individual or a company, and they typically include the owner of proprietary information and the recipient. Both agree not to disclose sensitive information they receive during their business with each other.
Why Do You Need an NDA?
Every business has proprietary material that needs to be kept private in order to maintain a competitive advantage. Examples include:
- Client information or customer lists
- Potential leads
- Trade secrets
- Manufacturing processes
- Proprietary software
- Business plans
- Marketing strategies and advertising techniques
- Intellectual property
- Accounting information
Sometimes, a business must share sensitive information with other parties. An NDA prohibits the signing parties from stealing, selling, or sharing that information with competitors or third parties.
When Do You Use an NDA?
Businesses often use NDAs in the following situations:
- Licensing or selling a product, technology, or other intellectual property
- Onboarding employees or independent contractors
- Interviewing job candidates
- Exploring a potential partnership or investment
- Negotiating a merger or acquisition
- Establishing a relationship with a new client or service provider
What to Include in an NDA
All NDAs should include the following details:
- Who is disclosing and who is receiving confidential information
- What counts as confidential information
- Any exceptions to confidentiality
- What the recipient can and cannot do with the confidential information
- What happens if the recipient breaches the agreement
- How long the confidentiality agreement will last
- Any special clauses related to how information or disputes will be handled
Frequently Asked Questions
What happens if you break an NDA?
If you break a Non-Disclosure Agreement, you can be sued by the other party.
The NDA may outline other potential consequences, such as losing your job or paying a fine. You may also be subject to criminal prosecution if your breach involves trade secrets.
How long do NDAs last?
NDAs can last for a set time or indefinitely. The terms of an NDA should specify how long it lasts and what if any, conditions will trigger its expiration.
How to Write an NDA
Follow the steps below to ensure that your NDA covers all of the essential information:
Step 1 – Identify the parties involved
Provide the names and addresses of the parties signing the agreement. Be sure to note who is the disclosing party and the recipient.
Step 2 – Set the scope and time frame
Explain what information the NDA covers and how long it will be in effect. What does and does not count as confidential information? When or under what conditions will the NDA expire?
Step 3 – Explain obligations and exclusions
Specify how confidential information can and cannot be used, including whether confidential information should be returned or destroyed upon termination of the business relationship. What is expected of the recipient and the discloser? What information is considered public knowledge?
Step 4 – Set a time frame
Decide how long the NDA will last. Will it expire after a certain number of years or continue for the duration of the business relationship?