NDA meaning

When a company does business with a supplier, its own employees, investors, freelancers, and other companies or parties, confidential information and trade secrets are often exchanged or disclosed. This exchange can take place already when the two parties enter into an agreement. However, it is very important for the company to maintain information and confidentiality on the part of the contract partner. Therefore, non-disclosure agreements (NDA) are necessary to ensure the confidentiality of information that should not be made public.

NDA meaning

What does NDA stand for?

An NDA (also known as a confidentiality agreement) is a legal contract that should be used when confidential information needs to be shared between two parties. It guarantees that a person or organization that has access to confidential information will not disclose it to a third party.

NDAs are simple written agreements between parties and do not require registration or notarization. They are often used to protect confidential information and trade secrets.

The NDA must specify the essential terms:

determination of the most confidential information;determination of the rights and obligations of the parties to protect the trade secret regime;determination of the period of non-disclosure of confidential information.Purpose of the non-disclosure agreementThe purpose of a non-disclosure agreement is twofold: confidentiality and protection. Information protected by a non-disclosure agreement can include everything from a product specification to a list of customers. Business models, test results, and even embargoed press releases or product reviews can all be subject to an NDA.

The NDA creates a legal framework to protect ideas and information from being stolen or passed on to competitors or third parties. Violation of an NDA agreement has many legal consequences, including lawsuits and financial penalties. NDAs provide a certain level of protection for your business, so even accidental breaches will be covered.

There are three main functions of an NDA. Let's take a look at them.

Protected information definition

By drawing a line between what information is private and what can be shared, the NDA categorizes information. This allows the parties to operate freely within the boundaries set by the confidentiality agreement;

Protecting Confidential Information

Signing an NDA creates a legal obligation to keep confidential information confidential. Any leak of such information is a breach of contract;

Patent Protection

Because public disclosure of a pending invention can sometimes invalidate patent rights, an NDA can protect the inventor during the development of a new product or concept.

When do I need an NDA?

Whether you are looking for investors, hiring new employees, or looking for new partners or collaborators, at some point, sensitive information must be shared with individuals or entities outside of your organization. NDAs ensure that the company moves forward safely in these processes.

When do you need to conclude an NDA? Below are five situations in which a confidentiality agreement is necessary.


When your organization enters into an agreement to sell or license a product or technology, you need to make sure that all data you disclose - technical, financial or other proprietary materials - cannot be transferred to third parties;


Since they have access to sensitive and proprietary information, you need to ensure that your employees cannot share your organization's sensitive data while on the job or after leaving;


during negotiations with a new partner or investor, you need to ensure the protection of information transmitted during these negotiations;

New Clients

When you bring in a new client, your organization may become the owner of that company's confidential information. The NDA can protect your organization by determining what information cannot be shared to avoid incidental legal liability;

Mergers and Acquisitions

When selling a business, confidential financial and operational information must be shared not only with the company that buys your business, but also with intermediaries and brokers. The NDA ensures data protection.

Confidentiality agreements are also often entered into when providing information to potential investors, entering into contracts with suppliers, and when exploring joint venture opportunities.

Types of NDAs

In general, non-disclosure agreements fall into two main categories: unilateral and reciprocal. In a unilateral NDA, one party agrees not to disclose confidential information. In a mutual NDA, both parties agree not to share confidential information.

In all other respects, these two types of confidentiality agreements are identical, especially when it comes to enforcement and the consequences of a breach.

An employment contract is a great example of a unilateral NDA. Upon hiring, an employee signs a one-way NDA, pledging not to share information obtained on the job. In contrast, if one company merges with or acquires another company, a mutual NDA ensures that none of the parties involved in the process divulge confidential information.

When drafting a confidentiality agreement, you should answer a few questions that will help determine whether you need a unilateral or mutual agreement:

Type of business: Does the activity involve the mutual exchange of information or the involvement of several parties (eg, mergers and acquisitions, joint ventures, collaboration agreements)?Reciprocity: Are both parties equally protected and obligated to ensure that neither party is unfairly "benefited" by the agreement?Number of parties: Are more than two parties involved, or does each party provide information?
NDA meaning

Essential parts of a non-disclosure agreement

All NDAs must include these specific elements:

is intended to identify people and / or organizations participating in a non-disclosure agreement. It explains who the disclosing party and the recipient are, using names and addresses. Relevant parties such as lawyers, accountants, or business partners may also be listed;Definitions: This section of the NDA sets out the various types of information covered by the agreement and sets out how it should be handled. It answers the question of what information is confidential;Obligations: What happens if protected information is shared? The NDA not only sets out the specific behavior expected of each signer, but also defines the consequences of breaching the agreement;Scope: A well-defined scope ensures that NDAs can be enforced. The use of general terms such as "service information" is not specific enough. The scope should define what specific information is covered by the NDA;Timeframe: Most NDAs don't last forever, and many confidentiality agreements explicitly state the number of years that confidential information must be kept secret. Even those agreements that have an indefinite duration often specify when information ceases to be protected by the agreement;Return of Information: Upon termination of the business relationship between the parties, NDA may require the recipient to confirm that confidential information has been returned or destroyed;Exceptions: These are the types of information that do not need to be kept confidential. This may include public knowledge, previously disclosed details, or information that someone knew prior to entering into a business or financial relationship with the company or firm;Remedies: If the confidentiality agreement is violated, what happens? There are many possible courses of action, or remedies. These may include payment of compensation for damages and other actions related to breach of fiduciary duty and infringement of copyrights, patents or trademarks.

NDA restrictions

Of course, not all information is protected by a non-disclosure agreement. Public documents or company addresses are not subject to such confidentiality agreements. Courts may also interpret the scope of an NDA in a way that one or more of the participants may not have anticipated in the first place. If the information contained in the NDA is disclosed in some other way - such as in a legal proceeding - then the NDA no longer applies.

In addition, managing multiple NDAs in an organization quickly becomes impossible without a standardized language. When NDAs start to number in the hundreds, manually reviewing, negotiating, and negotiating unique contracts becomes extremely complex and time-consuming. A standard, customizable confidentiality agreement solves this problem, but only if the organization takes the time or consults with experts to create a standard NDA that meets all of its needs.

NDA meaning

Signing the NDA

There are many situations in which you may be asked to sign an NDA, including:

starting a new job with the employer;start of work under a contract with a new client;study of investment opportunities;negotiating a business partnership or joint venture;merger with or acquisition of a company.

It is quite normal that in these or any other situations where you are given access to confidential information, you are asked to sign a non-disclosure agreement. When this happens, it's important to know what to look for in an NDA.

Expect to see the parts of the NDA listed above, including definitions of parties, definitions, obligations, scope, timing, return of information, exceptions, and remedies. There may also be mutual non-disclosure or non-sale clauses, as well as jurisdiction for disputes.

Before signing an NDA, take the time to read it carefully and make sure you understand the contract. If you find broad or vague language that unnecessarily restricts you, it may make sense to refuse to sign until this is corrected. Specific examples would be statements that you may not disclose information that is public knowledge, knowledge that you already possess, or information obtained from a third party.

Business and Finance terms

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