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Significance Of Non-Disclosure Agreement (NDA)

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Most employed people would have come across the document Non-Disclosure Agreement (NDA) at least once. In every kind of business deal, an NDA is extremely important, more so when you are outsourcing any work. Which brings us to this question – What is a non-disclosure agreement?

A non-disclosure agreement (NDA) or a confidentiality agreement (CA) is a binding legal contract between any two parties which describes the restrictions in sharing of confidential information, company resources and other intellectual entities.

Safety Agreement
Simply put, the NDA is used when you want to share confidential details with a third party but wishes to restrict access to the shared matter thereby declaring it inaccessible to anyone other than the people with whom the information has been explicitly shared or people in the contract agree not to disclose information to anyone else. As simple as that.

What Does An NDA Contain?

Now that we know what the purpose of a non disclosure agreement is, let’s discuss what a typical NDA will contain. While there is no standard format followed globally, because the type and nature of information being restricted by the NDA varies based on the business, there are some elements common to most NDAs. They are –

  • Names of the parties involved in the non disclosure agreement.
  • Period of disclosure – or how long the NDA stands and for how long the confidential matter is supposed to remain confidential. Generally, if Non Disclosure clause exists in some other contract, for instance- employment contract, the Non disclosure clause will have validity for more than the period of the Contract.
  • Permissible exclusions – what matters can be divulged to other parties.
  • Legal obligations of the parties involved and consequences of breach
  • Definition of confidential – Generally includes, technical know how. company policies, pricing policies, customer information, etc. Based on the nature of information being discussed by the NDA, there would be some variation. Hence, confidentiality clause should be explicitly defined in each NDA.

Again, there is no standard format. The requirements of each business are unique and hence, the NDA could differ in each case.

Why Do We Need An NDA?

While there are many reasons behind the need for an NDA, legal experts say that there are three chief reasons which make a non disclosure agreement vital. They are –

1. Safeguarding sensitive information

As discussed in the opening paragraph, the entire idea behind an NDA is protection of confidential and sensitive information. If there is no NDA in place, the parties involved could go around disclosing said sensitive information to a potential competitor or the public rendering the information unsafe. For this reason, NDAs site a clause which describes how such breaches are to be handled legally. As this is a legally enforceable contract, parties would refrain from breaching it out of fear and apprehension thereby ensuring that confidential data stays confidential.

2. Prevents theft of ideas

Should the shared information deal with an idea for a company or a product, not placing a restriction on sharing such data could lead to theft of that idea. Hence, to help the inventor preserve or apply for patents in future, it is essential to have a non disclosure agreement in place. Anyone remember the movie “Social Network”? The Winklevoss twins filed a case against Zuckerberg claiming that he stole the idea of Facebook from them. Would not have happened if the twins signed an NDA with Mark Zuckerberg.

3. Identifying what is private

While it is impossible to outsource work without sharing data, having clear definitions on what must be kept private and what can be shared, will help both parties immensely. This is why an NDA is needed, as it helps achieve clarity on that.

An NDA can cover limitless types of information – passwords, ideas, strategies, financial details, in short, any information that is exchanged between two parties while conducting business.

While some folks skip the drafting of an NDA owing to mutual trust, it is definitely not recommended. Like we said, most business dealings do call for a non-disclosure agreement. If you don’t have an NDA in place, these are the potential consequences.

  • No legal protection in case one party leaks all your confidential info.
  • Intellectual property theft. Someone could steal all your ideas and claim that they belong to them. Any room for patenting the idea would go up in smoke.
  • Trade secrets could be leaked leading to loss in profits or even worse, complete breakdown of your business.
  • The party who leaked the information could walk away trouble free.

This list could be endless, but in short, not having an NDA could ruin your business.

Putting Together A Non-Disclosure Agreement

If you want to draft your non disclosure agreement quickly and efficiently, we’re your go-to place. We can event print it and deliver to your doorstep, saving you both time and effort. We also have a host of other legal documents which can be customized to suit your needs. Do try our services and let us know how we can help you.

30 Sep, 16

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