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written by | April 11, 2022

Non-Disclosure Agreement: Benefits and Precaution

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If you are in business or about to start one, you know that there are many examples of sharing sensitive information with other parties. And that fear of misuse of your data and information lurks. There is a solution for that so you can focus on your business and leave all your worries behind. It is those three great letters: NDA or non-disclosure agreement! Continue reading this article to learn the terminology and create a business-safe ecosystem. Non-disclosure agreements are important elements of business used for negotiations. 

Did you know?

There are three types of known non-disclosure agreements: bilateral NDA, multilateral NDA, and unilateral NDA. 

What is NDA?

A non-disclosure agreement is a written agreement between two parties ( organisations or individuals) that prohibits sharing of sensitive information between the two parties. 

In short, if you are asked to sign a non-disclosure agreement, you will be asked to promise not to disclose sensitive information shared with you to other entities or individuals.

On the other hand, if you are the issuer of a non-disclosure agreement, ask that you do not disclose information with others to third parties. 

We may recognise non-disclosure agreements under other names such as:

  • Confidential Agreement (CA)
  • Secrecy Agreement (SA)
  • Confidential Disclosure Agreement (CDA)
  • Proprietary Information Agreement (PIA)

A non-disclosure agreement can serve a variety of situations. Non-disclosure agreements are typically required when two companies discuss collaboration but want to protect their interests and potential transaction details. In this case, the NDA's wording prohibits one party from disclosing information about the other party's business processes or plans.

Some companies require new employees to sign a non-disclosure agreement if they have access to sensitive information about the company. NDAs are also often used before discussions between companies seeking potential investors and funding. In such cases,  NDA is designed to prevent competitors from acquiring trade secrets and business plans. Non-disclosure agreements for the employees are the most common in corporate sectors. 

Types of NDA

There are three known types of non-disclosure agreements:

Multilateral NDA 

Multilateral NDA involves more than two parties, one of which discloses sensitive information. The other parties in the agreement will agree to protect that information from further disclosure.

Bilateral NDA 

Two parties are involved in this type of NDA. One of the parties can share sensitive information, and the opposite party agrees to protect the information from outside parties.

Unilateral NDA 

Two parties are involved in this type of NDA. We expect one party to disclose sensitive information and the other party to protect the information from further disclosure.

Also Read: Everything You Need to Understand About an LLP Agreement

The Difference Between Disclosure and Non-Disclosure Agreements

When individuals are required to sign an agreement, a doctor may require a patient to sign a contract that allows them to share their medical information with an insurance company. This empowers the parties to share personal information and avoid being sued. This type of agreement is called a disclosure agreement. On the other hand, a non-disclosure agreement is a legal agreement that can cause penalties for the violation. 

What are the Requirements for a Non-Disclosure Agreement?

The requirements for a non-disclosure agreement are:

  • The names of the parties involved in the agreement. 
  • A definition of confidential information in the agreement
  • The period involved
  • Any exclusions from confidentiality 
  • A provision for the use the confidential records.  
  • Miscellaneous provisions

This last "miscellaneous" section may include the law or state law applicable to the contract, the party paying the attorney's fees in the dispute, etc. 

Non-disclosure agreement templates and standard contract templates are available on many legitimate websites.

Let’s see an example of how a non-disclosure agreement can affect you. Apple is one of the most private companies in the world. The company will continue to protect its technology and future products tightly until it is ready to release them. NDA is to prevent competitors from stealing trade secrets or copying products. Apple has been a technology pioneer for most of its life and attracts attention as a marketing strategy.  In early 2021, automaker Hyundai confirmed that it was talking with Apple about the car. This statement raised suspicions that Apple may be entering the car market or developing car-related products. Hyundai then issued a follow-up statement, removing the mention of Apple.

Apple claims confidentiality in all relationships and forces each partner to sign a non-disclosure agreement. Apple has told its partners never to say the name "Apple," and Apple threatens financial claims against partners who have leaked information. This is a real-life example of how an NDA can protect your business. 

It is also important to understand when exactly we need a non-disclosure agreement. You can need a non-disclosure agreement in multiple instances. 

  • If you are starting a new business deal, signing a non-disclosure agreement is your best option if you're inviting a vendor or consultant and you don't want the information you share to be disclosed. Having all employees sign non-disclosure agreements for early-stage start-ups and some information-sensitive companies. This allows you to keep simple things like strategies, forecasts, funds, etc., from disappearing from the ecosystem.
  • When you are an established company and plan to start a new venture, this requires the involvement of external and internal stakeholders. It is recommended that you sign an NDA  to avoid any ambiguities or claims that may arise from either side at any given time.
  • It is a very common practice when talking to investors, acquiring or merging. However, modern investors are hesitant to sign NDAs very early, so this practice is now obsolete. You may need to verify your documents and numbers, and as communication progresses, you may be asked to sign a non-disclosure agreement. This should include a clear rationale for why you need to sign a non-disclosure agreement. The same applies to the merger and acquisition process.

Advantages and Disadvantages of Non-Disclosure Agreements

The main advantage of non-disclosure agreements is that confidential information about the company is kept private. This can be research and development (R&D), future patent potential, finance, negotiations, whatever. Signing a non-disclosure agreement is one way to prevent your personal information from being disclosed. The 

The NDA contract is also clear. They state what they can and cannot disclose to avoid confusion. NDAs have signed the paper so that they can be made cheaply. This is one of the most cost-effective ways to manage your personal information.

The non-disclosure agreement also outlines the disclosure results of prohibited information to prevent leakage. In addition, non-disclosure agreements are a great way to maintain the comfort and trust of a relationship.

One of the main drawbacks of  NDA agreements is that they start relationships based on distrust. This allows you to set the tone of the relationship but is not always positive. It is more of a controlling agreement. Employees' NDAs know that their ability to talk about future jobs is limited, so they can also prevent high-level talent from joining the company.

Consequences of Violation of Non-Disclosure Agreements

If you become aware that any sensitive information covered by a non-disclosure agreement is publicly shared, it is very important to quickly collect evidence of that action. Get answers to questions such as who leaked the information, how it was leaked, and how the information was processed. The next step is to hire a lawyer who is familiar with the nature of your business and continue on the legal path. 

You are now ready to protect your business and its details by creating a high-quality non-disclosure agreement. NDAs are one of the little things that lay the foundation for a successful business. 

Therefore, the next time you start a new strategy, use the above points to continue protecting your business as you grow.

Also Read: What is TReDS?

How Long Does a Non-Disclosure Agreement Last

Each non-disclosure agreement is unique, so each period is different. The normal period is 1 to 10 years, but NDA may be undefined depending on the information to be kept confidential.

What is a Non-Disclosure Agreement Template?

NDA templates are non-disclosure agreement templates that individuals or businesses can follow to create their own NDA. The template contains general legal information and blanks that can be filled in to create a clear non-disclosure agreement between two or more parties applicable to the relationship. NDA templates can be easily found online using an internet search. Many websites provide NDA templates to use.

Conclusion

Confidentiality agreements make it easy to create cheap, legally binding documents between two or more parties that keep your personal information confidential. Organisations and individuals use them to protect their businesses and personal information and enable companies to work together without fear of personal information falling into the hands of competitors. When drafting a non-disclosure agreement, it is important to be as detailed as possible so that all parties can and cannot share and know the consequences of the information breach.

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: What are the key elements of an NDA agreement?

Ans:

The key elements of an NDA agreement are the correct definition of confidential information, the name of the parties involved in the agreement, when to use the information and the period.

Q: In a non-disclosure agreement, what do you mean by miscellaneous provisions?

Ans:

The term "miscellaneous" section may include the law or state law applicable to the contract, the party paying the attorney's fees in the dispute, etc. Non-Disclosure agreement templates and standard contract templates are available on many legitimate websites.

Q: How many types of non-disclosure agreements are there?

Ans:

There are three types of NDA, bilateral NDA, multilateral NDA, and unilateral NDA.

Q: What is a non-disclosure agreement template?

Ans:

NDA templates are non-disclosure agreement templates that individuals or businesses can follow to create their own NDA. The template contains general legal information and blanks that can be filled in to create a clear non-disclosure agreement between two or more parties applicable to the relationship.

Q: What does a non-disclosure agreement mean?

Ans:

A non-disclosure agreement is an agreement between two parties (organisations or individuals) that prohibits sharing of sensitive information between the two parties.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.