When one is indulged into some business or even ready to establish one, there are multiple things or legalities one should be aware of especially when the business or the employer is interested in sharing confidential or secretive information of the company or business with any other party or person or employee. In these kinds of situations, the other party is often made to sign a Non-disclosure agreement (NDA) wherein the other party has to make sure that they don’t share this confidential information with any third party or shares only if the original party has consented to it.
So, a non-disclosure agreement or NDA is basically a written contract between any two parties or persons or companies (organizations) that forbids the sharing of confidential information to any third party and it should remain confidential between both the parties.
The main purpose of framing an NDA, is that companies or employers have the fear of losing their data or that the data might be misused in different ways by the other party but this is where Non-disclosure agreement comes to help and works as an assurance for the first party that the information disclosed to the other party will not be misused to leaked to some other person or party.
Apart from this purpose, there are other situations where an NDA is often required or the person is made to sign it. Some of the common places where an NDA is required is when parties or companies or firms get into discussions about their business deals or plans together and want to collaborate but at the same time, they also intend to maintain their policies and interests and every detail of the potential deal. In order to secure the confidential information of such business deals and contracts, an NDA is signed between both the companies and the language of the NDA clearly specifies that the agreement bars both of them from disclosing any kind of information regarding the deal or business plans or policies of the other party.
Then NDA are also needed when any new employee is hired, they are popularly known as the Employment NDA, which the employee needs to sign before they join the employer or company or organization. In the employment NDA, the employee might have access to confidential information and can misuse this information to get illicit benefits and hence, these agreements are necessary to be signed off.
NDA is also commonly used when there are heavy discussions and negotiations going on between a company or organization seeking for funding from their potential investors and stakeholders. In these situations, the NDA is used for avoiding the competitors from obtaining the trade secrets or business plans of the other companies and organizations.
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Importance and Features of Non Disclosure Agreement –
As stated above, a non-disclosure Agreement or NDA is an official written contract or agreement between 2 parties or persons that creates a legal binding on both the parties that they are not allowed to share confidential information outside to any third party. This agreement creates a legal relationship between the party with one aim to not reveal or disclose the confidential information to any third party or parties. It is kind of an assurance or security that the information shared with the party or parties will not be made available to other party or parties. Thus, an NDA can also be referred to as a Confidentiality Agreement.
They are very common form of agreement and often find a place where big businesses are involved or entering into discussions and negotiations with the other businesses. Once, this agreement is signed only then the companies or organizations render their sensitive information to the competitors or investors as they don’t have the fear of losing their sensitive information. These kinds of agreements are also known as the mutual non-disclosure agreement.
So, when one is asked to sign an NDA, they are basically asking for a promise that the information shared or revealed to them should not pass onto any other person or party other than it is required or stated to. On the other hand, if you’re are the issuer of the agreement then you might ask the other person or party to not share the information with anyone else, other than those whom you consent for.
When one goes to company or organization or even to a lawyer, there are different names given to Non-disclosure agreement, some of the commonly used names are-
- Secrecy Agreement
- Confidential Agreement
- Confidential Disclosure Agreement
- Propriety Information Agreement
There are certain number of things which should be checked and kept in mind while making or signing an NDA, as one should be aware of the rights and things, he/she is signing off with this agreement. Certain essentials which should be included in an NDA are-
- Both the names and addresses of the parties should be correctly mentioned in the agreement
- There should be an accurate definition of what constitutes as a confidential information in the present agreement
- Any exclusions from the confidential information
- Statements should be given which mentions the appropriate use of the information revealed
- The time period or limitation period of the agreement
- Miscellaneous provisions- as the term itself says “Miscellaneous”, it means that it shall include all the items which might cover details depending upon the other conditions specific to those parties such as their state law, or laws applicable to the agreement and what will be the compensation or who will make the payment of attorney fees in case of dispute.
These were some of the basic essentials which should definitely be included while drafting a non-disclosure agreement and even the person signing the agreement should read these terms and conditions and then sign it, if he/she is fine with it.
One must know certain essential features or characteristics of the Non-disclosure agreement. Some of them are listed below, although they are not limited to below-mentioned features only.
- Identifying of the parties who are signing the agreement
- Clear definition of the word “confidential” within the agreement and what all information will be considered as confidential
- Specific reason as to why the information is being shared and for what purpose
- Elaborate explanation stating the reasons that why the shared information can be used and cannot be used and any such prohibited use of information will amount to violation of the agreement
- Clear and explicit information regarding the period or time frame of the agreement.
Types of Non Disclosure Agreement –
There are certain types of non-disclosure agreement depending upon the parties involved and who is disclosing the sensitive information among them in the agreement. The different kinds of agreement are-
- Unilateral NDA- This kind of agreement, consists of only 2 parties and out of those 2 parties only one party is disclosing the confidential information and expects the other party to abide by the agreement and do not disclose the prohibited information from any further disclosure.
- Bilateral NDA- Even this NDA, has 2 parties involved in the agreement but both the parties are disclosing confidential information to each other with the common intention of protecting and safeguarding the confidential information of each other from any other external parties or persons or organizations.
- Multilateral NDA- This type of NDA, comprises of atleast 3 or more parties who are signing the agreement, but only 1 party out of them is revealing the confidential information and others are required to protect the information and prohibit themselves from disclosing the information to any further parties or persons.
When is NDA Required ?
There are numerous occasions when a person might have to sign an NDA either for their employment or business purposes. As mentioned above, there are various situations where an NDA might be required to be signed. Some of the common areas where an NDA is required are-
- While entering into business deal- whenever someone enters into discussions or negotiations and invites a vendor or consultant and the party wants to ensure that the information about their business is not leaked or given away, making these vendors sign an NDA is usually the best option. Even in the beginning of a business, such as early-stage start-ups, and some information-based companies they make their employees sign an NDA to preserve their information from leaking illicitly. This helps in saving and protecting even the most core, complex and simple statements such as strategies, projected numbers accounts and funds to stay within the members of the company itself.
- Starting a new project- there are many well established companies and firms who plan to expand by starting off with new projects in other fields or even in same fields. This kind of initiatives require involvement of both internal as well as external stakeholders and it is advised by the Directors to sign off an NDA in order to prevent any sort of ambiguity or claims which may rise from any of the other ends of stakeholders at any given point of time after the establishment of the new project.
- Talk with the investors or during mergers and acquisitions- this is pretty common use of the agreement and has been used since decades, but the modern-day investors have become a bit demanding and often deny to sign an NDA at an early stage of investment and hence it might seem that the practise of signing an NDA is getting outdated when it comes to making it signed by investors. So, when the discussions and deliberations reach a stable stage and the need is required to look into the documents and numbers, figures and there is advanced stage of assurance between company and investor then a request to sign an NDA is needed. Same procedure goes along in case of mergers and acquisitions of the company.
Benefits of Non Disclosure Agreement –
There are certain exclusive benefits of signing or making a Non-disclosure agreement. These advantages are the main reason, why these agreements are so prevalent in corporate world or even in normal form of contracts. The merits of an NDA are-
- NDA is a legal document or contract enforceable by law, so in case any dispute or breach of the agreement occurs, the compensation can be claimed by the aggrieved party and other party is obligated to reimburse the party or else he/she can drag him to the Court for execution of the agreement by the wrongdoer.
- The NDA is in written format and thus, the definition of Confidential is clearly mentioned in the contract and anything coming within the purview of “confidential” shall be made clear from the very beginning which helps in the long run as there is no confusion or doubts about what comprises of “confidential”.
- The agreement allows the person to maintain the secrecy of the information shared with him or shared by him to the other party and reduces the chance of breach of the contract as it is attached to compensation.
- Overall, this agreement is also used to protect the disclosure of intellectual property (including trade secrets, proprietary information and other confidential information), safeguarding the organization as whole.
Precautions while making and signing an NDA –
These agreements bind the other party from disclosing the confidential information and while one makes and creates an NDA for the business processes or firms, there are few things to be taken care of-
- One should ensure that all the information given is precise and specific and language used in the agreement is simple and lucid and unambiguous.
- All the involved parties to the contract should read the entire NDA and verbally explain the agreement so that they are aware of all the terms and conditions they are signing off to.
- There is no need of mentioning clauses or using any conflicting sentences in order to make the other party confused about the draft of the agreement
- It should be checked that the document should have an expiration date or ending date and if required a renewal period should also be mentioned within the agreement itself.
When NDA is Violated ?
At any point, when it is discovered or witnessed that any confidential information covered under the clause of NDA is being violated or shared to the public without the consent of the party, then it is crucial to gather evidence against the breach happened. Certain information such as who leaked the confidential information, by what mode it was leaked, what other uses are made with the information and so on.
Then, once the information is gathered the aggrieved party should hire an attorney who is familiar with these kinds of cases or businesses and follow the legal way as stated by the attorney. With this, one shall be able to safeguard their secrets as well claim compensation for such violation or breach by drafting a good NDA for their company and confidential information. It can be noted as one of the most essential and used document in the business and corporate sector.
Thus, it should be noted that NDA plays an important role in securing and protecting the confidential information of a company or firm or party from any third party. The agreement majorly prohibits the second party from disclosing the confidential information to the outer world and prevent these parties from misusing such information into earning their illicit gains. An NDA can be of different kinds depending upon the parties involved and who is sharing the information to whom. This, is one of the most important forms of agreement often signed by the companies or parties in the business world in order to secure their company secrets and make sure that no shared information is illegitimately used by the parties. This Agreement is quite effective, as it is legally enforceable against the breaching party.