In the business world, you'll often have information that needs to remain secret. If making that information widely known can negatively impact your interests, protect it with a Non-Disclosure Agreement.
Often, you'll need to make proprietary or sensitive information available to people you work with to complete a project or task. However, that may leave you vulnerable. With a Non-Disclosure Agreement, the person who learns the information is required to keep it secret and is forbidden from using it in any way not expressly stipulated by the agreement.
A Non-Disclosure Agreement is a legally-binding document that establishes limits to the use and distribution of specific and confidential information shared between two parties. It puts restrictions on an individual regarding how, when, and why the information can be shared or used.
Although just about anything can be deemed confidential, Non-Disclosure Agreements are typically made to protect information that can result in financial damages if misused.
Some examples of confidential information include
Intellectual property: Proprietary products, services, and business models are confidential intellectual property.
Accounting information: Contact info, names, and purchasing information of clients and distributors can be highly sensitive.
Customer data: Leaking customer information can make your business the target of lawsuits.
Depending on your state, a Non-Disclosure Agreement may also be known as:
NDA
Confidentiality Agreement
Confidential Disclosure Agreement
Proprietary Information Agreement
Secrecy Agreement
Anyone who needs to discuss or share sensitive information can use a Non-Disclosure Agreement to protect that information. If you have a product idea you wish to sell or license, you'll need to reveal the details to potential buyers. An NDA with prospective partners protects your design from reaching competitors or its use as leverage in other negotiations.
Sometimes, you'll need to reveal proprietary information to employees in the normal course of business. An NDA prevents employees from sharing that proprietary information with a competitor or using it to start their own competing businesses.
You may even want to use a Non-Disclosure Agreement with a company you're providing services for. By being proactive about protecting their information, you can gain a business partner's trust as someone who understands the nature of their business.
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To create your NDA, please provide
Effective Date: The date when the agreement goes into effect.
Governing State: Select which state's laws will apply to the Non-Disclosure Agreement.
Disclosing Party: The full name and address of the person or entity disclosing information.
Definition of Confidential Information: The specific details about what information is considered confidential between the two parties.
Term: The duration of the agreement. You may choose to have the NDA persist in perpetuity or set an end date when the agreement no longer applies.
Exclusions: Information specified as not covered by the agreement.
Severability: A clause that makes the Non-Disclosure Agreement as a whole valid even if a court rules that parts of it cannot be enforced.
Unilateral: When a contract only covers information going one way. In other words, only information from the disclosing party to the receiving party is protected.
Obligation to Disclose: A section of the agreement that makes it possible to reveal confidential information without penalty under specific circumstances. Typically, this refers to information requested by a court or administrative entity.
Remedies: Acceptable consequences the disclosing party can request if the receiving party breaches the agreement by revealing information.
To be valid, a Non-Disclosure Agreement only needs two signatures — the disclosing party and the receiving party. It doesn't need to be notarized or filed with any state or local administrative office. However, notarizing the signatures on your NDA is a way to ensure no one challenges them later and firmly establishes the validity of the document.
Once both parties sign the document, each should receive a signed copy of the Non-Disclosure Agreement that they should keep in their respective personal records.
Because NDAs contain details about sensitive information, they should be kept in a secure location with limited access. Anyone who has access to the NDA should also be asked to sign an NDA. Mark sensitive documents as "CONFIDENTIAL" to show their proprietary nature.
Periodically, it's beneficial for both parties to review the terms of the agreement. The receiving party may come into contact with information not protected in the original contract, or the disclosing party may no longer need to protect certain information.
You do not always have to use a written Non-Disclosure Agreement. In many instances, both parties may settle on an oral agreement. However, having a written contract is common too, and it would possess clear evidence of the agreement and all the provisions. A written contract may reassure both parties and prevent any misunderstandings that might ensue.
A properly executed NDA is legally binding. It is recommended to seek legal advice before breaking the terms in the NDA. Any breach of the contract can result in legal action, including damage compensation and a court order against disclosing the relevant information.
Confidentiality Agreements and Non-Disclosure Agreements (NDA) are used interchangeably, although there are subtle differences in practice.
The Confidentiality Agreement is used for a higher level of secrecy. NDAs simply specify the information covered, as opposed to Confidentiality Agreements that may require the parties to actively protect the sensitive data against theft, e-database breaches, and more.
The NDA is mostly used in startups involving a third party. Third parties can be potential investors, customers, suppliers, and vendors that would be required to protect any disclosed intellectual property, trade secrets, financial information, etc.
NDAs are most common in the US. When doing business across borders, foreign companies may recognize either as a Confidential Agreement.
Confidentiality Agreement in Employment. Confidentiality Agreements are more commonly used.
A non-disclosure agreement can be unilateral, mutual, or multilateral.
Unilateral NDAs only require the receiving party to sign the NDA.
Mutual NDAs or Bilateral NDAs are signed by both parties, usually when both are in receipt of business secrets.
Multilateral NDAs govern three or more parties, of which at least one is a disclosing party. The use of a Multilateral NDA eliminates the need for separate Mutual NDAs.
The NDA created through this page is a Unilateral NDA.
NDAs exclude the following:
Non-proprietary information: Information that is not classified as a trade secret or owned by one of the parties.
Subpoenaed information: If subpoenaed by a court, a receiving party can disclose information to the authority without violating the NDA.
Public information: All information considered public knowledge.
Common knowledge: Commonly known information in the industry.
Previously known information: A receiving party is not required to protect information learned prior to the NDA.
Including a non-compete covenant with your NDA is a promise not to compete against the other party. This may be restricted to a particular market and location. This covenant is most commonly used between employers and employees, especially the star employees who might want to strike out on their own in the same industry. While this can be a separate document, you may also include it in the non-disclosure agreement
An injunction is a court order for one party to refrain from a certain act at the threat of contempt of court. As relates to a NDA, a court injunction would most commonly order one party to not disclose any relevant confidential information they are not supposed to share. The defendant who breaches a NDA may be ordered to pay monetary damage, but even before or after that, the claimant can petition the court for an injunction to order the defendant to not disclose the information or to refrain from disclosing any further.
The non-solicitation cluase is a covenant to refrain from using confidential information to poach clients or employees from the party that disclosed the information. While it can be a standalone document, the non-solicitation clause is often inserted into other contracts.
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