Non-disclosure agreements explained

Article by Bethany Waters

When businesses begin to enter into negotiations with each other, non-disclosure agreements (NDAs) are important in establishing a confidential relationship and ensuring sensitive information can be shared by both parties. These are often used in commercial law before negotiations begin on a transaction between businesses and are a legally binding contract. NDAs are vital in managing the disclosure of sensitive information to ensure businesses confidentiality is respected. NDAs are put in place to contractually protect all parties information that may be disclosed. Businesses will not only want to protect their own information, but will want to ensure that any potential liability for managing other parties confidential information is minimised. There are many different scenarios in which a business may need an NDA before negotiations begin, for example, presenting a business idea to a potential partner or sharing financial information with a prospective buyer.

What types of NDAs exist?

There are two main types of NDAs, One-way NDAs and Mutual NDAs. The main difference between a one-way and Mutual NDA is that a one-way NDA is an agreement that protects your confidential information only. A mutual NDA protects both parties confidential information. Mutual NDAs are more likely to be used in business relationships such as acquisitions, partnerships, mergers or joint ventures. Mutual agreements are more likely to be used in these situations as business relationships usually require full disclosure of specific information. A mutual agreement will allow the business venture to move forward without fear of any confidential information being disclosed.

An NDA will cover several different areas and businesses will decide which areas will need to be covered. An NDA will set out the information that should be considered confidential and can protect information used in different settings, such as in meetings. An NDA will often include a detailed definition of confidential information so both parties have a clear understanding of what constitutes confidential information.

An NDA will usually make a clear distinction between private information and details that may be shared with the public. This is important for clarification for both parties on what may be shared and what is considered private and confidential. In the terms of an NDA it will usually set out the restrictions for the ways in which certain information is used. For example, it may include obligations for the receiving party. This could set out how the receiving party would use any confidential information. This includes restrictions on the use of confidential information.  For example, the NDA might set out that the receiving party cannot publish, copy, or disclose confidential Information without prior written consent.

Time restrictions

Time restrictions are another key element of an NDA. This section sets out the provisions for confidential information once the agreement has been terminated. This is an important element to an NDA as it sets out how confidential Information will be protected once the agreement has been terminated.

Breaching an NDA

Another key feature of an NDA will be the consequences of any breach of contract. An NDA is a legally binding contract and it is important within that contract to set out any consequences for breaching the agreement. NDAs are common documents within commercial law and it is important to gain an understanding and awareness of the key elements within commercial law when considering a career in this sector.