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What is a Non-Disclosure Agreement (NDA)?

A non-disclosure agreement often referred to as an NDA, is a confidentiality agreement. A legal contract between at least two parties; one who has confidential information to share and the other to whom the secret information will be disclosed. It is a legally enforceable contract that prevents the second party from revealing anything specified in the agreement with outside parties not included in the deal.

Non-disclosure agreements (NDAs) are pretty commonplace in business these days, many companies have their employees and partners sign non-disclosure agreements to protect their intellectual property, business schematics, or proprietary processes, while other industries may use similar contracts to protect the reputation and privacy of the parties involved. The most well-known examples being 'attorney-client' privilege or 'doctor-patient' privilege. Violations of a non-disclosure agreement ensure legal recourse and the possibility of suing for damages.

In this article, we'll discuss when it makes sense to use a non-disclosure agreement and what the contract should include.

When Does a Non-Disclosure Agreement (NDA) Make Sense?

A non-disclosure agreement makes sense any time you wish to share valuable information about your business or idea and want to ensure that the receiving party does not steal or use said information without your approval.

Below are some examples of everyday situations when you may want to use a Non-Disclosure Agreement :
  • Hiring new employees who will have access to confidential and proprietary information about your business during their employment.
  • Presenting product or business ideas to potential partners or investors.
  • Sharing or providing sensitive information to outside contractors.

What's in the contract?

Non-disclosure agreements typically include three elements:

  1. Obligations of people and parties involved.
  2. Definitions and exclusions of confidential information.
  3. Time periods.

A non-disclosure agreement always identifies who the disclosing party and receiving party is and specifies that the receiving party (the party to whom the proprietary information is being disclosed) is to keep the information secret, as well as outlines the limitations of its use. The receiving party, therefore, has two obligations:

  1. Keep the information confidential.
  2. Not use the confidential information itself.

Definitions of the contract, outline the types of information and categories covered by the agreement without disclosing any specifics. While Exclusions, list the information that may be excluded from protection. Most often exclusions refer to information considered to be common knowledge or data collected before the deal was signed.

Time periods are used in confidentiality agreements and require that the receiving party uphold the terms of the contract for a specified length of time. How long an NDA should last usually depends on the industry, you're in. Most confidentiality agreements have a two to five-year time limit, as policing confidential obligations over a lifetime can become quite costly. However, these contracts generally include a clause that says though the term has ended, the disclosing party isn't forfeiting any other rights it may have under patent, copyright, and other intellectual property laws.

Non-disclosure agreements are an excellent way to ensure your confidential information stays protected. It is important that you always understand all the terms of any legal document before signing it. This article contains general information about non-disclosure agreements and should not substitute legal advice.

Chris Combs is the co-founder and SVP of Business Development at LinkSquares.