What Is a Nondisclosure Agreement (NDA)? Definition and Guide

What is an NDA?

A nondisclosure agreement (NDA), sometimes referred to as a confidentiality agreement, is a written contract between two parties (people or organizations) that prohibits the sharing of confidential information that has been revealed to them.

In a nutshell, if you are asked to sign an NDA, you are promising to keep secret any sensitive information shared with you and not share it with others. If you are the issuer of the NDA, you are asking someone else not to share any information you might share with them.

There are two types of NDAs

  1. Unilateral-where one party agrees not to reveal information provided by another party. Most agreements fall into this category, such as with employers and employees or clients and vendors.
  2. Mutual-used typically when companies are exploring a potential relationship, such as a partnership, collaboration, merger, or purchase, and both sides need to share sensitive information with the other in order to make decisions about that relationship. These are less common.

The purpose of the NDA is to prevent business confidential information from becoming public knowledge. For example, if an independent contractor came across the secret formula for Coca-Cola®, they would be prohibited from telling anyone else without serious repercussions (meaning a major lawsuit costing too many dollars to count).

Generally, NDAs are signed at the start of a business relationship, such as when an employee is hired. They can also be signed at the conclusion, such as when a partner has decided to leave, but they may be harder to negotiate at that point.

Key clauses

Some of the key sections of an NDA include, but are not limited to:

  • Identifying who the parties are that are signing the agreement
  • Defining exactly what is considered confidential information protected by the agreement, and what is not considered confidential (such as publicly-available reports or information shared by someone else)
  • Explaining why the information is being shared now, for what purpose
  • Clarifying exactly how the shared information can and can’t be used, such as not being able to be used for any purpose other than that which has been stated (called a “no use” clause)
  • Setting the timeframe or duration of the agreement

When your NDA has been violated

If you discover or suspect that trade secrets or confidential information covered by an NDA have been shared publicly, it is important to act quickly to gather evidence of how the information was leaked, who has it, and what it being done with it, as well as who is responsible. The first step is hiring an attorney familiar with intellectual property.

Nondisclosure Agreement FAQ

What is non-disclosure agreement?

A non-disclosure agreement (NDA) is a contract between two or more parties that outlines confidential material, knowledge, or information that the parties wish to share with one another for certain purposes, but wish to restrict access to or by third parties. It is a legal contract that creates a confidential relationship between the parties to protect any type of confidential and proprietary information or trade secrets. It is also known as a confidentiality agreement or confidential disclosure agreement.

What are the 5 key elements of a non-disclosure agreement?

  • Parties: The names and details of the parties involved in the agreement.
  • Confidential Information: The exact definition of the confidential information being shared and protected.
  • Obligations: The responsibilities of each party, including how long the agreement will last, what restrictions are in place, and how the confidential information will be used and stored.
  • Exclusions: Any exceptions to the agreement, including information already in the public domain and information that is independently created by the receiving party.
  • Termination: The conditions under which the agreement can be terminated and the consequences for any breach of the agreement.

What is a non-disclosure agreement example?

A non-disclosure agreement example could be a contract between two parties where one party agrees not to disclose confidential information shared by the other party. This could include trade secrets, proprietary information, or any other confidential information that the disclosing party wishes to remain private. The agreement should also specify what type of information is considered confidential, the duration of the agreement, and the consequences for any breach of the agreement.