A Non-Disclosure Agreement (NDA) sounds like something out of Hollywood – something you are required to sign if you bare witness to an event that non-one should know about. Signed under the cloak of darkness and hushed away into secrecy. The reality of course is (often) very different. And is far more commonplace.

What is an NDA?

An NDA is defined by the Oxford Dictionary as –
“a contract by which one or more parties agree not to disclose confidential information that they have shared with each other as a necessary part of doing business together.”

And NDA’s are signed amidst many a different business, professional or working relationship – common when two businesses are entering into negotiations with one another.

In this light, Investopedia defines an NDA as follows –
“A non-disclosure agreement (NDA) is a legally binding contract that establishes a confidential relationship. The party or parties signing the agreement agree that sensitive information they may obtain will not be made available to any others. An NDA may also be referred to as a confidentiality agreement.”

What is an NDA used for?

The purpose of a NDA is not as sinister as a Hollywood movie would make you believe.

The purpose of a NDA is really quite straightforward and simple. It allows parties to gain access to the sensitive and private information of another company under the undertaking that the information shared will be protected from the prying eyes of competitors and/or unauthorised third parties.

The instances of when an NDA may be used is –

• during employment when that employee will have access to trade secrets or proprietary; information of the company they are employed by;
• during negotiations between two companies when one company is up for sale;
• when there is prospecting investors;
• when an attorney provides legal advice to a company after the receipt of sensitive information, or
• when IT companies have access to a company’s files and data (to name but a few instances).

In some situations – for example when one company seeks to purchase another and a due diligence (which involves the full and complete investigation of the legal, economic, fiscal, and reputational situations of a company) is performed by both companies, a mutual NDA may be required – meaning both parties undertake not to disclose the sensitive information of one another to an unauthorised third party.

As can be gleaned from the above, a NDA’s sole purpose is to ensure strict confidentiality.

Can an NDA be worthwhile?

Well, the simple answer to that question is – yes.

As NDA’s are legally binding agreements, breaching the terms thereof whether by verbal, written or other means can result in serious legal action being taken against the person divulging the information they agreed not to divulge.

The blabbing person could be sued for 

• breach of contract; 
• breach of fiduciary duties; 
• misappropriation of trade secrets; 
• copyright infringement, or even
• espionage – just look at Julian Assange founder of Wikileaks.

Can an NDA be worthwhile?

Now that we know what a NDA is, what it can be used for and what the consequences of breaching it are, we can now look at 6 tips to keep in mind when drafting one or when being asked to sign one- 

• First and foremost, it’s crucial to understand or to define why you are signing the NDA – define its purpose;

1. Identify and define what information you will be disclosing and/or protecting;
2. Define the period or duration of the application of the NDA i.e. how long will the NDA apply? 
3. Ensure a non-circumvention clause is included in the NDA (a non-circumvention prevents a party subject to the clause from not directly or indirectly contacting, dealing with, transacting, or otherwise being involved with the other party’s suppliers or clients. Another description would be a restraint of trade);
4. Ensure that a list is made of any and all information that has been disclosed and to whom it has been disclosed to. Ensure a request is made to the other side of a list of people who will receive the confidential information, and
5. Should the transaction not proceed, ensure that there is a mutual return or deletion of any and all confidential or sensitive information that was shared amongst the parties. There should be written confirmation of this. 

Should you require an NDA, a free downloadable one is available on our website. 

If you have any questions or queries regarding the information we have set out above or if you require assistance with tracking, organizing and collaborating on contracts, matters, cases, legal compliance, tasks, legal operations and much more, contact us for a free demo. 

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