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What is a non-disclosure agreement?

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A non-disclosure agreement (NDA) is a contractual agreement to keep secrets secret. If an individual or business does not want confidential information shared they can ensure that other parties aware of that information sign an NDA.

Lots of businesses use NDAs, also known as confidentiality agreements, for a variety of reasons, for example, to protect an invention.

NDAs can also arise between an investor and a company seeking funding, as any contract may include a go-to-market strategy and sales plan, potential customers, a manufacturing process or proprietary software.

Key takeaways

  • A non-disclosure agreement, or confidentiality agreement, is a contract that prohibits the sharing of confidential information.

  • There are three types of non-disclosure agreements: unilateral, bilateral and multilateral.

  • Violating a non-disclosure agreement could leave the offending party liable to a lawsuit or financial damages.

Types of non-disclosure agreements

There are three types of NDAs:

  • One-sided or unilateral. One party agrees not to disclose information about another. This is the most common type of NDA.

  • Mutual or bilateral. Two parties agree not to disclose confidential information about each other.

  • Multi-party or multilateral. An NDA between three or more parties, in which at least one has to disclose confidential information.

What does an NDA cover?

A non-disclosure agreement needs to set out the scope of the agreement, identifying the parties concerned and the nature of the confidential information. It should also be clear on how long the agreement will last. 

The agreement should also detail what, if any exclusions there are to the agreement. For example, an employee may sign an NDA regarding confidential information about their work. However, certain instances might require the sharing of that information for normal business to be conducted. 

The consequence of breaching the NDA should also be clearly defined in the contract. In some cases a breach may leave the offending party liable to financial penalties or lawsuits.

Conclusion

A non-disclosure agreement is a contractual agreement to not reveal confidential information. They can often be used in business in order to keep potentially lucrative information, such as invention schematics or marketing strategies, secret. However, an NDA could theoretically be available to any party or parties who wanted to ensure confidentiality.

The text of an NDA should detail the information that is to be kept confidential, as well as all the parties involved and whether there are any exceptions to the agreement. Additionally, it should state how long the agreement will last and if the penalties for breaching confidentiality.

FAQs

What is a non-disclosure agreement used for?

A non-disclosure agreement is used to guarantee that one or more parties are prohibited from disclosing confidential information.

How long do non-disclosure agreements last?

The duration of a non-disclosure agreement should be clearly detailed in the agreement, and could range anywhere from a few days to several years.

Why is a non disclosure agreement important?

Non-disclosure agreements could allow parties to guarantee the confidentiality of information that could be integral to their wellbeing or success.

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