TL;DR
A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legal contract between two or more parties that outlines the terms under which confidential information can be shared and protected.
NDAs are widely used across various industries and business transactions, including mergers and acquisitions, in order to protect a wide range of confidential information.
How Does a Non-Disclosure Agreement Work?
The primary function of an NDA is to legally bind the parties involved to maintain the confidentiality of the information shared. Here’s how it typically works:
1. Identification of Confidential Information
The NDA begins by clearly identifying the confidential information that is subject to protection.
This can include specific documents, data, processes, or any other information that one party considers sensitive and proprietary.
2. Obligations of the Receiving Party
The receiving party agrees to specific obligations regarding how they will handle the confidential information. These obligations typically include:
- Non-Disclosure: The receiving party agrees not to disclose the confidential information to any third party without the prior written consent of the disclosing party.
- Non-Use: The receiving party agrees not to use the confidential information for any purpose other than the one specified in the NDA. For example, if the NDA is signed for a potential business partnership, the information should only be used to evaluate the partnership and not for any other business activities.
- Protection and Care: The receiving party agrees to take reasonable measures to protect the confidentiality of the information, such as restricting access to the information and ensuring that any employees or contractors who have access are also bound by confidentiality obligations.
3. Duration of Confidentiality
The NDA specifies the duration for which the confidentiality obligations will remain in effect. This period can vary depending on the nature of the information and the agreement between the parties.
Some NDAs are indefinite, meaning the obligation to maintain confidentiality continues until the information is no longer considered confidential (e.g., it becomes publicly available).
Others may specify a fixed period, such as five or ten years.
4. Exclusions and Exceptions
NDAs typically include certain exclusions and exceptions to the confidentiality obligations. Common exclusions include:
- Publicly Available Information: Information that is already publicly available or becomes public through no fault of the receiving party is not subject to confidentiality.
- Independently Developed Information: Information that the receiving party independently develops without using the confidential information is excluded from the NDA.
- Legal Disclosures: The NDA may allow the receiving party to disclose the information if required by law, such as in response to a court order or regulatory request. However, the receiving party is usually required to notify the disclosing party before making such a disclosure.
5. Consequences of Breach
The NDA outlines the consequences of breaching the agreement, which may include legal action, financial damages, or injunctive relief to prevent further disclosure or misuse of the confidential information.
The specific remedies available depend on the terms of the NDA and applicable laws.
Key Elements of a Non-Disclosure Agreement
A well-drafted NDA typically includes the following key elements:
- Definition of Confidential Information: A clear and detailed definition of what constitutes confidential information under the agreement, including any specific documents, data, or categories of information.
- Obligations of the Receiving Party: The specific duties and responsibilities of the receiving party in terms of protecting the confidentiality of the information, including non-disclosure, non-use, and security measures.
- Duration of the Agreement: The length of time for which the confidentiality obligations remain in effect, as well as any conditions under which the obligations may expire.
- Exclusions and Exceptions: Any circumstances under which the confidentiality obligations do not apply, such as publicly available information or information independently developed by the receiving party.
- Consequences of Breach: The legal and financial consequences of breaching the NDA, including potential damages and remedies available to the disclosing party.
- Governing Law and Jurisdiction: The legal framework that governs the NDA, including the jurisdiction in which any disputes will be resolved.
- Mutual or Unilateral Agreement: Whether the NDA is mutual (both parties agree to protect each other’s confidential information) or unilateral (only one party discloses confidential information and the other party agrees to protect it).
Steal Our NDA Template
Keep in mind that the following template is a general example and may not be suitable for all situations.
We highly recommend you seek legal advice to ensure that the agreement is tailored to your specific needs and complies with the applicable laws in your jurisdiction.
—-
This Non-Disclosure Agreement (“Agreement”) is entered into as of [Date], by and between:
[Party 1 Name]
a [Entity Type, e.g., Corporation, LLC, Individual]
with its principal place of business at [Address]
(“Disclosing Party”),
and
[Party 2 Name]
a [Entity Type, e.g., Corporation, LLC, Individual]
with its principal place of business at [Address]
(“Receiving Party”).
RECITALS
WHEREAS, the Disclosing Party possesses certain confidential and proprietary information related to [general description of the subject matter, e.g., business operations, technical data, software, etc.] (the “Confidential Information”);
WHEREAS, the Receiving Party agrees to receive the Confidential Information for the purpose of [specific purpose, e.g., evaluating a potential business relationship, partnership, investment, etc.] (the “Purpose”);
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows:
1. Definition of Confidential Information
1.1 Confidential Information refers to all non-public information disclosed by the Disclosing Party to the Receiving Party that is designated as confidential or that, under the circumstances of disclosure, should reasonably be understood to be confidential. This includes, but is not limited to, business plans, customer lists, financial data, product specifications, software, designs, and intellectual property.
1.2 Confidential Information does not include information that:
- (a) is or becomes publicly known through no breach of this Agreement by the Receiving Party;
- (b) was rightfully in the possession of the Receiving Party prior to disclosure by the Disclosing Party;
- (c) is received from a third party without breach of any obligation of confidentiality; or
- (d) is independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information.
2. Obligations of the Receiving Party
2.1 Non-Disclosure: The Receiving Party agrees not to disclose the Confidential Information to any third party without the prior written consent of the Disclosing Party.
2.2 Non-Use: The Receiving Party agrees to use the Confidential Information solely for the Purpose and not for any other purpose without the prior written consent of the Disclosing Party.
2.3 Protection of Confidential Information: The Receiving Party agrees to take reasonable measures to protect the confidentiality of the Confidential Information, including restricting access to employees, contractors, and agents who need to know the information to achieve the Purpose and who are bound by confidentiality obligations at least as protective as those set forth in this Agreement.
3. Duration of Confidentiality Obligations
3.1 The obligations of the Receiving Party under this Agreement shall remain in effect for a period of [insert number of years, e.g., three (3) years] from the date of disclosure of the Confidential Information, or until such time as the Confidential Information no longer qualifies as confidential under Section 1.2, whichever occurs first.
4. Exclusions and Exceptions
4.1 The confidentiality obligations set forth in this Agreement shall not apply to information that is required to be disclosed by law, regulation, or court order, provided that the Receiving Party gives the Disclosing Party prompt written notice of such requirement and cooperates with the Disclosing Party in seeking an appropriate protective order or other remedy.
5. Return or Destruction of Confidential Information
5.1 Upon the request of the Disclosing Party, the Receiving Party shall promptly return or destroy all materials containing Confidential Information and certify in writing that all such materials have been returned or destroyed.
6. No License or Ownership Rights
6.1 Nothing in this Agreement shall be construed as granting any rights to the Receiving Party, by license or otherwise, to any Confidential Information or any patent, copyright, trademark, or other intellectual property right owned or controlled by the Disclosing Party.
7. No Representations
7.1 The Disclosing Party makes no representations or warranties, express or implied, as to the accuracy or completeness of the Confidential Information.
8. Governing Law and Jurisdiction
8.1 This Agreement shall be governed by and construed in accordance with the laws of the State of [State], without regard to its conflict of law principles.
8.2 Any disputes arising out of or relating to this Agreement shall be subject to the exclusive jurisdiction of the state and federal courts located in [City, State].
9. Miscellaneous
9.1 Entire Agreement: This Agreement constitutes the entire understanding between the parties with respect to the subject matter hereof and supersedes all prior discussions, agreements, and understandings of any kind.
9.2 Amendments: Any amendments or modifications to this Agreement must be made in writing and signed by both parties.
9.3 Severability: If any provision of this Agreement is found to be invalid or unenforceable, the remaining provisions shall remain in full force and effect.
9.4 Waiver: The failure of either party to enforce any provision of this Agreement shall not constitute a waiver of that provision or any other provision.
IN WITNESS WHEREOF, the parties have executed this Non-Disclosure Agreement as of the date first above written.
[Party 1 Name]
By: __________________________
Name: ________________________
Title: _________________________
Date: _________________________
[Party 2 Name]
By: __________________________
Name: ________________________
Title: _________________________
Date: _________________________
—
Conclusion
A Non-Disclosure Agreement (NDA) is a vital tool for protecting sensitive and proprietary information in a wide range of business contexts.
Interested in learning more VC related terms? Head over to our VC glossary!