What is a 'Non-Disclosure Agreement - NDA'

A nondisclosure agreement (NDA) is a legal contract between two or more parties that signifies a confidential relationship exists between the parties involved. The confidential relationship often refers to information that is to be shared between the parties but should not be made available to the general public. NDAs are also commonly referred to as a confidentiality agreement.

BREAKING DOWN 'Non-Disclosure Agreement - NDA'

NDAs often arise when two companies are about to do business together. The parties are restricted from releasing information regarding any business processes of the counterparty integral to the company's operations. NDAs also may arise between an employer and employee. If the employee has access to sensitive information about the company, he may be asked to sign an NDA when he is hired. This provides an incentive to the employee not to release this sensitive information and avoid a costly legal headache. NDAs also sometimes arise between a company seeking funding and an investor in the company or potential investors, as NDAs are a very common way to protect company trade secrets. This information may include a go-to-market strategy and sales plan, potential customers, a manufacturing process or proprietary software. If an NDA is breached by one party, the other party may seek court action to prevent any further disclosures and may sue the disclosing party for monetary damages.

Common Elements of a Nondisclosure Agreement

Though NDAs may be customized to any degree, there are six major elements considered essential to include. These are sections that detail the parties to the agreement, the definition of what constitutes confidential information, the exclusions from confidential information, the obligations of the receiving party, the time periods involved and miscellaneous provisions.

The parties to the agreement section, at the beginning of the NDA, is simply a description of who is involved. If it is a one-sided agreement, it identifies the disclosing party. If necessary, the NDA should also cover third parties such as affiliated companies, agents or other partners. The definition of confidential information section lists the types and categories of confidential information protected under the agreement. This section must establish the type of confidential information without actually revealing it.

The exclusions from confidential information section excludes certain categories of information as nonconfidential, which protects the receiving party of this information from having to protect it in the future. The obligation of the receiving party section details what certain parties can do with the information provided by the disclosing party. The time period and miscellaneous sections use straightforward language to cover the term of the agreement and any other matters deemed important, such as which state's law to apply to the agreement and which party pays attorney fees in the case of a dispute.

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