In business world, we enter into so many transactions and relationship on a daily basis that requires disclosure of the confidential information between the parties. The option to maintain its secrecy is only by entering into a Non-disclosure agreement or the confidentiality agreement between the parties exchanging the confidential information. This articles explains benefits and some points to remember for entering into such kind of agreement.
What is Non-Disclosure Agreement
A Non-disclosure agreement is a legal agreement between two parties where one party gives access to certain restricted information to the other party which shall not be disclosed to the outsider.
Cases Where Execution of NDA are Necessary
- In case of the employer and an employee relationship when the employee is in access of the companies potential information during the course of their job
- Receiving services from a company or individual who may have access to some sensitive information in providing those services
- Presentation of any invention or business idea to a potential partner, investor, or distributor
- Execution of NDA is essential when the investors are investing into your company and you are disclosing the company’s secret information related to financials
- Execution of NDA is essential whenever the two parties are joining together to accomplish a task or project
Mutual Vs Non Mutual NDA
There are 2 types of NDA:
- Mutual non-disclosure agreement: Agreement where each party shares the information. This type of agreement is executed between businesses engaged in joint venture that involves sharing proprietary information
- Non mutual or unilateral agreement: Agreement where only one side party will be sharing confidential information with the other side party.
Importance of Entering Into NDA
- Sometimes a non-disclosure agreement is entered into for the purpose of conducting due diligence or to protect confidential information. In such case in the absence of a non-disclosure agreement, due diligence may not take place. For example, a merger/takeover or the sale of a business.
- Maintains the business relationship
- It also defines the consequences for breaching of the terms of agreement
Key Elements of Non-Disclosure Agreements
A well-drafted non disclosure agreement specifies what information you don’t want the other party to disclose and what will be the consequences for breaching the agreement.
- Definition of confidential information: A clear definition of confidential information should be form part of the agreement which defines what kind of information to be disclosed during the course of relationship and what not to be disclosed
- Name of Parties: In Non- disclosure agreement despite disclosing the name of disclosing and recipient parties name, it should also provide the name of the outsider
- Term and duration: The duration of this agreement should also be defined for how long the information to be kept confidential
- Legal Obligation to Disclose: In situation where the recipient is under the legal obligation to disclose the information to 3 rd party. It is always better to include this clause that the recipient will disclose such relevant information and that too by giving a notice to the disclosing party
- Return of the confidential information: Your Non-disclosure agreement should contain a clause that when the confidential information typically needs to be returned or destroyed by the Recipient Party.
- Dispute resolution: this clause incorporation in any agreement is most important which provides the resolution mechanism in circumstances of breach of agreement i.e., disclosure of the confidential information without the notice.
- Non binding clause: By inserting this clause in the agreement you are providing an opportunity to the parties to terminate the relationship or contract at any point.
In case you need to create a NDA to protect your proprietary information, please contact Enterslice.