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A non-disclosure agreement (NDA) is a contract between a party disclosing confidential information and the party receiving that information. The receiving party, who is also known as the recipient, agrees to protect the other party’s confidential information by keeping it secure, not using it for unauthorised purposes, and not disclosing it to third parties. NDAs are crucial whenever sensitive information is being shared, but many individuals and businesses don’t understand when or how to use them.
How does an NDA work?
Like all other contracts, an NDA consists of an agreement by one party to fulfil an obligation to another in exchange for consideration (something of value). The obligation in an NDA is confidentiality i.e. the duty not to disclose the other’s confidential information once it has been made available to the recipient. The consideration in an NDA is the disclosure of the confidential information itself and any benefits the recipient will gain in the future from the other’s confidential information.
Like other contracts, the confidentiality obligation lasts for a specified term. During that term the recipient must keep the confidential information secure, and this may include not copying, reproducing, disassembling or even reverse engineering it. If this obligation is breached, then the disclosing party may seek legal or equitable remedies in response.
NDAs can be one-way or mutual, depending on how many parties are sharing their confidential information to the others. If it's one party, then there is one receiving and one disclosing party. If it's both parties, then they are both considered recipients of the other’s confidential information.
What is confidential information?
Confidential information can be anything, even if it is not marked as such, which is disclosed in circumstances giving rise to an obligation of confidence on the part of the recipient. It can be technical and/or commercial in nature, and constitutes a benefit conferred to the receiving party. All material and information which is not publicly available or independently developed by the receiving party can be confidential information. This includes ideas, trade secrets, client lists, marketing information, diagrams and drawings, consents, computer software etc. Confidential information, notably, can be shared both orally and in writing.
When should I use an NDA?
There are several situations where it has long been established that an NDA is valuable, such as when negotiating a license agreement or working with potential investors. NDAs tend to be used when hiring a new employee, independent contractor, or supplier. When exploring new business relationships, it is almost routine to sign an NDA in order to protect both parties’ confidential information.
Even in novel scenarios, NDAs should be used if a party will be sharing important information with the other and it matters to them that the other party understands the sensitivity of the information and thus undertakes to protect it. An NDA, if made properly, is a legally binding agreement so both parties need to intend to create legal relations when they sign one.
How can I make an NDA?
An NDA can be created on a contracting platform such as Legislate by answering a few simple questions and choosing the key terms of your agreement. The NDA can be signed and sent to the other party to sign on Legislate as well. Unlike getting templates online, Legislate guarantees NDAs which are up-to-date with the law, lawyer-reviewed and simple to understand. You can read our tutorial on NDAs here.
If you want to learn more about NDAs download our free contract handbook for more information.
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