What is an NDA and when do I need one?

What is an NDA?

An NDA, which stands for a non-disclosure agreement, is a legally binding contract in which a business or individual promises to keep certain information received from another party confidential.

There are generally two parties to an NDA: discloser and disclosee. The discloser is the party who is disclosing the confidential information subject to the terms of an NDA. The disclosee is the party to whom the confidential information is being disclosed, subject to the terms of an NDA.

There are different forms of a non-disclosure agreement, depending on whether only one or all of the parties to the agreement owe obligations to maintain confidentiality:

• Unilateral NDA: This is used where only one party is disclosing confidential information. The party who receives the confidential information is the only party who owes obligations to maintain confidentiality.
• Mutual NDA: Both parties share and receive confidential information with the other. Both parties owe obligations to maintain confidentiality with each other.
• Three-Way: Three parties all agree to share confidential information with each other and keep confidential the information received from the other two.

What counts as confidential information?

Non-disclosure agreements often have very comprehensive definitions of what constitutes confidential information. Non-disclosure agreements usually define confidential information to include any and all non-public information disclosed by one party to the other. The information might be in written form or oral. It may include ideas, concepts, designs, techniques, plans or any other form of information.

When should you use an NDA for your business?

As a general rule, whenever your business is disclosing information that is considered confidential or proprietary, your business should enter into an NDA with the party you are disclosing that information.

Here are some common examples of situations where your business will likely disclose confidential information to another person:

1. Negotiating with another party for the licensing or sale of intellectual property or technology

2. Sharing sensitive commercial information with a potential acquirer of your business

3. Engaging a company or individual to provide services, the provision of which will require them to access confidential information

4. If employees might have access to confidential information

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