What is a Non-Disclosure Agreement?

A Non-Disclosure Agreement (NDA) or Confidentiality Agreement is a legally binding contract that decrees that some or all information contained within must remain confidential. Depending on the nature of the Non-Disclosure Agreement, single or multiple parties may be subject to its clauses.

While some Non-Disclosure Agreements are written into other contract types, it is most common for them to be used on a standalone basis when specifically needed. Get full disclosure on what NDA really is here.

What should be included in a Non-Disclosure Agreement?

While every Non-Disclosure Agreement is different depending on your specific needs, there are several clauses and conditions that you should ensure are covered every time you use this document.

  • The parties involved. Typically referred to as the “Discloser” and the “Recipient,” you need to outline who is disclosing the information to be kept confidential, and who is receiving it and thus subject to the agreement.
  • Any existing or other agreements and documents alongside which the non-disclosure agreement will be actioned. For example, if you're using a Non-Disclosure Agreement alongside an existing service contract or a terms and conditions or terms of use document, you should include this in the new agreement for the avoidance of doubt.
  • Penalties for breach of the agreement. If a dispute arises or action needs taking against either party for a violation, the Non-Disclosure Agreement should outline the penalties for which either party will be held liable.
  • Duration of the Non-Disclosure Agreement. Detail the length of time for which the Non-Disclosure Agreement will remain in force. This is a vital clause to include in your Non-Disclosure Agreements. It prevents another party from sharing confidential information about your business should negotiations break down about a business deal, for example.

When should you use a Non-Disclosure Agreement?

There are various situations in which you might use a non-disclosure agreement.

The most common usage of these documents is during discussions around business deals like partnerships, mergers, acquisitions, and takeovers. For example, in partnership discussions, both parties may wish to undertake due diligence around the financial situation of the other. Using a Non-Disclosure Agreement would mean that both parties can share and see each other's sensitive data and be covered against either releasing it in the event an agreement cannot be reached. Likewise, if a business is looking to sell, a non-disclosure agreement is helpful as they can share data with interested parties safe in the knowledge it won't be publicly disclosed should the deal not go ahead.

Non-Disclosure Agreements are also widely used alongside employment contracts or when using freelancers or other gig economy workers. Employees may encounter and work with a significant volume of confidential information when going about their duties, and many businesses choose to have a Non-Disclosure Agreement in place alongside an employment contract. Likewise, if you’re working with freelancers or other gig economy workers on a short-term or service contract basis, using a non-disclosure agreement can help you ensure they can work as they need to while protecting your business in the longer term.

Why use a Non-Disclosure Agreement?

Using a Non-Disclosure Agreement ensures that you can prevent any sensitive or confidential information about your business or an individual from being released into the public domain. While the foundational use of a Non-Disclosure Agreement relates to keeping things confidential, there are several "real world" reasons why you may benefit from having a Non-Disclosure Agreement in place.

  • You can better take care of your data protection obligations. All businesses are subject to data protection regulations to some extent. By using a Non-Disclosure Agreement, you not only protect your own data but any information relating to third parties or consumers that people or other businesses may need to view.
  • You can run your business more effectively. The whole world knowing about how your business operates or what new products you have coming to market is not a sustainable platform for achieving success.
  • You can avoid adverse publicity. Often, internal data about your business won't always be flattering or show you in a positive light. Using a Non-Disclosure Agreement can help prevent that data from coming into the public domain and causing reputational damage to your company.
  • You remove any doubt around how data should be used. Working in “good faith” is nice, but it usually isn’t a good idea in the modern world. Using a Non-Disclosure Agreement makes it 100% clear what is and isn’t able to be disclosed publicly.

Where and how to use a Non-Disclosure Agreement

It’s a good idea to have a Non-Disclosure Agreement in place whenever there is anything that you don’t want put into the public domain. While Non-Disclosure Agreements are typically between a business and an external party, they can also be effective when used alongside employee contracts or with freelancers and gig economy workers.

Use Contractbook’s Non-Disclosure Agreement template to help you customize your NDA’s 100% to your needs, either it is mutual or one-sided.

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