As a small business owner, it’s essential to understand non-disclosure agreements (NDAs) and their significance in protecting your sensitive information. An NDA is also known as Confidentiality Agreement. A non-disclosure agreement’s is a legally binding contract between two or more parties that outlines the confidential information they will share with each other and restricts its disclosure to third parties.
A non-disclosure agreement’s main purpose is to allow its parties to freely share information without any fear and to prevent sensitive and confidential information from becoming public knowledge. For example: If a contractor comes across the secret formula for the famous Mcd Burger, he would be prohibited from telling anyone else without facing serious legal consequences costing him a lot of money.
WHAT IS CONFIDENTIAL INFORMATION?
The term “Confidential Information” shall means and include all information and data relating to the purpose which is obtained, whether in writing , pictorially , in machine readable form, on compact disc, electronic mail, postal mail orally in connection with or during the course of the agency engagement, intellectual property and other customer related information, sales information, supplier information, sales statistics, market intelligence, marketing information and other commercial strategies of a confidential or proprietary nature.
However, Confidential Information does not include information that falls under one or more of the following categories:
- is in or comes into the public domain without breach of this agreement by the agent;
- was in the agent possession prior to receipt from company and was not obtained by the agent from the company under an obligation of confidentiality or non-use;
- is obtained by the agent from a third party and no obligation of confidentiality or non-use of the company;
- is approved for release or use by written authorised from the Company;
- is required to be disclosed by the agent at the upon request or at the express direction of an authorized governmental or judicial agency.
PURPOSE OF NON-DISCLOSURE AGREEMENT’S
The main object of an NDA is to protect confidential information from unauthorized disclosure. NDAs are commonly used in various business contexts, such as during mergers and acquisitions, partnerships, employment agreements, or when sharing sensitive information with contractors, consultants, or collaborators. By signing an NDA, the parties involved can establish a legal framework that ensures the confidentiality of the disclosed information.
TYPES OF NON-DISCLOSURE AGREEMENT’S
Non-disclosure agreement can be of three types:
- UNILATERAL NDA- It involves two parties but only one party discloses information to the other and wants to protect it from further dissemination.
- BILATERAL NDA- It is also known as Mutual NDA. It includes two people, each of whom shares information with the other with the intention of keeping it from being shared further.
- MULTILATERAL NDA- When three or more parties join into an agreement, at least one of them must disclose information to the other parties while also pledging to keep it from being shared further. A single Multilateral NDA can be used in place of two to three Unilateral or Bilateral NDAs.
PARTIES TO THE AGREEMENT
The agreement should begin with a description of the parties involved. The revealing party and the recipient of the information may be referred to as the “disclosing party” and the “recipient party,” respectively, if the NDA is a unilateral agreement and only one party is releasing sensitive information.
A clause that defines who else the recipient may disclose the sensitive material to throughout the course of due diligence and contract talks should also be included in an NDA.
WHY SIGNING A NON-DISCLOSURE AGREEMENT’D IS SO IMPORTANT?
Non-Disclosure Agreements are crucial for firms in order to maintain their competitive advantage. For instance, a business may need to hire someone or contract out work if it is creating a new product or something for sale. Most of the time, business owners must communicate sensitive or private information with other people or organisations. A written confidentiality agreement that has been signed might lessen the chance of intellectual property theft. Without a signed non-disclosure agreement, misuse or inadvertent disclosure of sensitive information can occur. This is because even when discussing your product or service with another person in simple terms, you run the risk of accidentally disclosing information whether you realise it or not, you’re telling someone your “secret”. Considering that even a few minor specifics about that good or service could inspire someone to create something akin to what you just done. An individual’s product or service should be safeguarded and kept a secret for as long as feasible, similar to the KFC secret formula, which no one can use or reproduce. And when one needs to speak with anyone else to make their product or service work or to receive their advise, one must be sure to sign an NDA in order to protect their sensitive information. When you consider what you are about to say, it seems appropriate to provide additional assurance that the person you are talking to will not talk to others.
WHAT ARE THE IMPORTANT CLAUSES IN NDA?
Clause 1. Definition of “Confidential Information”
Confidential Information must have a broad enough definition to include all types of information. Information that is both tangible and intangible can fall under this topic. Only information that is already known to the receiving party and is in the public domain cannot be referred to be confidential.
Clause 2. Use of the information
Some parties limit the dissemination of information to a select group of the other party’s personnel or departments. In this sentence, the word “need to know” is the one to focus on. In essence, this paragraph mandates that the information provided be shared with those who “need to know” it and that it only be used for the purposes specified in the Agreement.
Clause 3. Exclusions from Confidentiality
This clause specifies certain types of information that are not subject to confidentiality, such as information that is already publicly known or becomes publicly available through no fault of the receiving party.
Clause 4. Obligation of Receiving Party
This clause outlines the responsibilities of the receiving party (the party receiving the confidential information) to maintain the confidentiality of the disclosed information. It may include obligations such as not disclosing the information to third parties, using it only for agreed-upon purposes, and taking reasonable measures to protect its secrecy.
Clause 5. Term and Termination
This clause establishes the duration of the NDA and the conditions under which it can be terminated. It may also include provisions for the return or destruction of confidential information upon termination.
Clause 6. Governing law and jurisdiction
This clause specifies the governing law that will apply to the NDA and the jurisdiction where any disputes arising from the agreement will be resolved.
Also Check : Article on Joint Venture Agreement?
Jibran Farooqui is a seasoned professional with a passion for driving business growth and expansion. As a Business Expansion Expert at Juris Consultants, he brings a wealth of experience and a strategic mindset to help businesses navigate the complexities of growth in an ever-evolving market. With a background in business development and a deep understanding of the legal and regulatory landscape, Jibran is well-equipped to guide clients through the intricacies of expanding their operations. He specializes in developing market entry strategies, forging international partnerships, and optimizing business processes to maximize profitability.