A nondisclosure agreement, commonly referred to as an NDA, is used to ensure information exchanged between two parties doing business is kept private. They are commonly used in business various reasons that may include: when employees or contractors are privy to confidential information, when an offer is being presented to a potential investor, or during discussions of the sale of a new product or technology.
You should keep the following in mind before you sign an NDA:
The NDA should identify the parties to the agreement and identify who is the disclosing party, or side sharing the information, and who is recipient. The names and the addresses of the parties should be included on the agreement.
It’s important that you ensure the agreement is clear about what information is protected and what is not. This is known as the scope of the agreement. NDAs commonly cover issues such as customer lists, business plans, personnel information, financial statements, information about inventions, and trade secrets.
The agreement should explain how the recipient may use the information. It should also clearly define the exclusions to the agreement, or the types of information that do not need to be kept confidential.
The document should indicate the length of time the agreement is binding, which can often extend beyond the date the business between the parties has concluded.
Once business between the parties has concluded, an NDA will commonly require that confidential information be returned to the disclosing party or destroyed or deleted. The recipient typically needs to confirm they have done this.
A nondisclosure agreement will often state that the recipient agrees not to disclose or use the shared information, purposely or inadvertently. An example of inadvertently sharing information would be using a product that has not been released yet in public.
The NDA should also state the course of action the disclosing party can take if the agreement is breached. This may include:
There are additional clauses to look for in a nondisclosure agreement, including: