What is a Non-Disclosure Agreement?
25 September 2020
A Non-Disclosure Agreement (also called an “NDA” or “Confidentiality Agreement”) is a legal document signed by businesses and/or individuals that want to be able to exchange information freely with each other, but do not want their information to be misused by the other party or shared with third-parties.
It is often used when a business or individual wants to explore the possibilities for a business deal before actually concluding an agreement with the other party covering the terms to the business deal.
It is a good way of protecting your secret or sensitive information from being used by the other party in the event the deal does not go ahead.
There are lots of situations where you might want to disclose information that is sensitive and/or valuable. Often the party receiving the information would be able to benefit from using the information that is disclosed. The Receiving Party might be able to use the information to compete against the Disclosing Party. Also, the Receiving Party could share the information with someone else (a third-party).
A Non-Disclosure Agreement can be used to prevent other people from using the information provided to them by the Disclosing Party and will protect the Disclosing Party’s personal or business information or ideas.
Reasons for using a Non-Disclosure Agreement might be:- a proposed franchise; a business acquisition; the appointment of an agent or distributor; demonstration of a plan, ideas or a prototype; hiring an employee; etc.
A Non-Disclosure Agreement could also allow the Disclosing Party to claim damages and losses if their information is misused by the Receiving Party or shared with third-parties.
A Non-Disclosure Agreement can make provision for only one party to disclose confidential information (One-way Non-Disclosure Agreement) or for both parties to disclose confidential information (Mutual Non-Disclosure Agreement or Two-way Non-Disclosure Agreement).
Disclosing your confidential information is often inevitable
While developing an idea or growing your business, you might find total secrecy is best. But there are many occasions when discussions in advance of a deal will involve talking about secrets of some sort.
A Non-Disclosure Agreements allows you to be open with the other side; to develop a more trusting relationship; and, hopefully, agree to a deal on the best terms for everyone.
Your confidentiality information and non-disclosure
It is important to understand that sometimes, no matter how hard you try and how many legal documents you sign, accidental or unintentional disclosure can happen.
Therefore, it is might still be beneficial to manage risk by limiting the information that you disclose or share, even after signing a Non-Disclosure Agreement.
Even if you trust the people you are working with, it is still advisable to sign a Non-Disclosure Agreement. At least then everyone understands and appreciates the importance of observing the confidentiality of the information. The upside of protection from insisting on an agreement far outweighs the downside of loss of private data.
A Non-Disclosure Agreement does not create a business relationship between the parties.
It will only govern how the Disclosing Party’s information is to be handled and protected.
To create a business relationship, the parties will need to sign other agreements, such as a Sale of Shares Agreement; Service Level Agreement (SLA); Employment Contract; Property Sale Agreement; etc.
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