NDA Explained – What Is An NDA?

Not sure how an NDA, also known as a confidentiality agreement, could impact your company? Consider this: if NDAs and secrecy were not in place, nearly nothing would be done.

Businesses couldn’t rely on one another. Everyone’s customer lists and sales operations would be accessible to everyone. Employers would continually be concerned that their staff will sell trade secrets to competitors.

But there is some good news. Your company’s secrets can be readily protected, and drafting an NDA is nearly always easier than attorneys make it out to be. In 9 out of 10 occasions, all you have to do is modify a few words and you’re ready to go. In this piece, we want to assist you in doing so.

More About the NDA and What Type You Should Use

An NDA or “nondisclosure agreement,” is a legal contract between two or more parties that specifies what information you or the other party must keep private. Startups and organizations utilize NDAs to protect themselves in the event that anyone tries to reveal secret information about the company. They aid in the protection of your company’s trade secrets and other information. It prevents things such as your business plan or client contact list, from being disclosed to the public or rivals.

There’s a couple main types of NDAs – unilateral and bilateral. Unilateral means one party is obligated to keep certain info of another party confidential. Bilateral agreements mean that each party will each other’s information confidential. Here are some examples:

Unilateral NDA Examples

  • Hiring an employee. In most cases, you’ll share confidential information with your employee but they’re not sharing confidential information with you (if they are, make sure they’re not in breach of any other company’s NDA and confidentiality provisions).
  • Hiring for help on a project or hiring a consultant.

Bilateral NDA Examples

  • Mergers. This is the most obvious example. If you’re thinking about merging with another company, you’ll both want to know information about each other to see if it makes sense.
  • Selling your company. If you’re selling your company, you’ll likely want to know details about the buyer, can they pay, will they maintain your vision, etc.
  • Collaborating with someone or a company in which you both are desirous of each other’s confidential information.
  • Two companies working together on a project.

How to Write an NDA

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First, ensure that you design a template based on what your company needs. We’ll focus on “unilateral NDAs” because they’re the most prevalent. Each provision in the agreement will be discussed in detail below.

Definition of Confidential Information

You must clarify what information you are calling “confidential” in your NDA. Imagine an employer telling you, “Everything I say to you in the next two years is secret.” You’re preparing to resign a year later, and your boss informs you it’s going to rain tomorrow. Your boss discovers that later that night, you informed a common buddy that it was going to rain the next day. Did you reveal any sensitive information? Certainly not!

That wide of a confidentiality agreement would never be upheld by a court. However, if the definition is too narrow, you risk mistakenly disclosing sensitive information, which the receiving party (the “receiving the information”) will be free to share with everyone.

NDA Purpose

You’ll notice that such documentation – and all NDAs – need you to specify the NDA’s “purpose.” “To develop a prototype product for the disclosing party,” for example, or “to examine the possible commercial connection between the two parties,” for example. The purpose is significant because it specifies how the sensitive information will be used by the receiver.

For example, let’s say you want to hire a developer to help you build your website. You share with him your business plans so he has a better idea of the type of website to build. You’d want to narrow the purpose in that scenario to be in connection with the “development of. . .” and then describe the specific parts of the website the developer will be developing.

Without the restriction of that purpose, the developer might use the confidential information to create a separate company.

Restrict Access to Confidential Information

You’re handing your information to the “Recipient,” but what if the “Recipient” is a business? What if the recipient has to consult his lawyer about something? These kinds of difficulties are handled under your NDA’s “Limited Access” clause.

In most circumstances, the template’s wording is enough. But, in general, consider who needs to know the material and restrict its dissemination to those individuals. Regardless of who the receiver exposes the material to, the recipient must ensure that that person signs an NDA consenting to the same conditions as the recipient.

Term of NDA Agreement

NDA might be for a single transaction that lasts a few days, or it could be for an endless period of time. The duration of the agreement is determined by the time span that encompasses the expected partnership. An NDA frequently lasts longer than the transaction or connection in question, especially for as long as the trade secret is kept hidden.

You probably want to include a provision that specifically states that the trade secret must remain protected. That has to stand even after a business relationship or other contractual agreement has ended. If you have no clue what to put here, know that the average time period is between one to five years. And remember that the time period needs to last as long as you need the information to remain confidential.

Return of Confidential Information

This provision is great because it ensures you’ll get your information back once the NDA term is complete. It made a lot more sense before when everything was in paper form. But you can use this provision to tell the recipient to delete any confidential information disclosed once the term ends.

Governing Law

This section of the NDA indicates what country’s contract law will apply to your NDA. In almost every case, people use their home country here. Similarly for “jurisdiction,” that just means what court will be responsible for handling the case if there is a dispute over the NDA. Most people choose their home country for that as well.

Someone Breached My NDA

If someone violates your NDA, you can sue them for breach of contract. This implies you have the right to sue them for any damages you suffered as a result of their violation. Sometimes all you want is for them to cease utilizing or disclosing the information. In such situation, you’ll seek injunctive action to prevent them from breaking the contract again.

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