• 3 min
• 12/31/1969

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.

Before Signing an NDA

You should keep the following in mind before you sign an NDA:

Parties to the Agreement

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.

Identification of What Information Is Confidential

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.

Length of the Agreement

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.

Return of the Information

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.

Obligations of the Recipient

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. 

Remedies for Breaches of Agreement

The NDA should also state the course of action the disclosing party can take if the agreement is breached. This may include:

• An Injunction: The disclosing party has the right to obtain an injunction against the recipient if they breach the agreement, to prevent additional breaches.
• Indemnification from loss caused by the breach: The disclosing party is usually entitled to compensation for damage caused by the breach.
• Other remedies, which may include actions for copyright, patent, or trademark infringement, or breach of fiduciary duty.

Other Clauses

There are additional clauses to look for in a nondisclosure agreement, including:

• Jurisdiction. The agreement should state where any disputes about the agreement will be handled. 
• Mutual nondisclosure. It's a good idea to create a mutual nondisclosure agreement in some situations, which requires both parties to keep the information confidential. 
• Non Solicitation - It's common for an NDA to prevent the recipient from hiring away employees from the disclosing party or preventing them from contacting the disclosing party's clients or customers.