To maintain competitive advantage, businesses often have to play their cards close to the chest. This means crucial information like business metrics, product roadmaps, and strategic plans need to stay in-house and are only circulated among trusted people.
That’s where non-disclosure agreements (NDAs) come in. One of the most common contracts in the business world, an NDA, is the legally enforceable equivalent of swearing someone to secrecy. Once an employee, business partner, or potential investor signs an NDA, they are required to maintain confidentiality or risk facing serious repercussions.
Learn all about NDAs below.
What Is an NDA?
An NDA is a legally binding agreement that helps businesses protect sensitive or private information. Also known as confidentiality agreements, NDAs are used both internally and externally in businesses across industries and prevent the unauthorized sharing of competitive business data.
Businesses in tech, for example, often use NDAs before providing prospective customers (and their developers) with access to their sandbox area. This way, even if they don’t become paying clients, they are bound to the terms of the NDA and cannot share company information without facing consequences.
Who Needs an NDA?
Any individual or business with sensitive information to protect needs an NDA. Internally, most companies require their employees to sign an NDA or some form of confidentiality agreement as part of their onboarding.
Externally, companies that are working with contractors or are undergoing joint ventures, mergers and acquisitions, or lucrative business deals often include NDAs as part of their standard agreements.
Types of NDA
There are two types of NDAs: one-way NDAs and two-way NDAs.
One-Way NDA
A one-way NDA, also known as a unilateral NDA, is a confidentiality agreement in which one party agrees not to share the sensitive business data of another while the other party is under no such requirement.
An example of a one-way NDA is an employment agreement or contract for an independent contractor. Whereas the employee or contractors can’t share company data, the company is under no such mandate regarding information shared by the employee or consultant.
Two-Way NDA
A two-way NDA, also known as a mutual, bilateral, or multilateral NDA, is a confidentiality agreement in which both parties are required to maintain confidentiality as outlined by the agreement.
Mutual NDAs are typically used during M&A activities or other joint business ventures.
What Happens When Someone Violates an NDA?
NDAs typically outline what information needs to be held in confidence, for how long, and what happens when the terms of the NDA are breached. This means that the consequences of breaking an NDA are specific to the specific agreement. But most often, the consequence of disclosing confidential information protected by an NDA is a hefty fine.
Takeaways
NDAs are a crucial part of doing business and should be a staple in your sales process. See how you can execute NDAs as a seamless part of your contract workflow using CLM. Request a demo of LinkSquares today.
