NDAs are commonly used for protecting vital business information; In the following article, we’ll talk about the basics of NDAs and 4 NDA advantages for long-term stability.
What is an NDA?
A non-disclosure agreement is a legal contract by which one or more parties agree not to reveal confidential information they have shared as a necessary part of doing business together.
NDAs are commonly used when businesses negotiate with other companies. They enable the parties to exchange sensitive information without fear of it falling into the hands of competitors.
NDAs are an excellent tool for protecting your organization’s information; Here are 4 NDA advantages for long-term stability.
Advantages of using NDAs:
1. Protection of confidential information
Signing an NDA prevents confidential information from becoming public.
The primary advantage of an NDA is that sensitive information about your company is kept private. This can include anything from R&D to potential future patents, finances, negotiations, and more.
NDAs help to keep employees from leaving the company and sharing sensitive information with a third party.
2. Clarity on what information can be shared
Clarity is one of the main aspects of an NDA. The agreement states plainly what is considered confidential and what information can be shared.
The party that discloses confidential information will define what is considered unshareable information.Sometimes they’ll want to make it as broad as possible in order to prevent any leakage.
The most common term of an NDA contract is one to ten years. The length of an NDA varies per company, and some employers make theirs indefinite in order to prevent employees from ever releasing their information.
3. NDAs Outline the consequences if the they are broken
NDAs also outline the repercussions of divulging prohibited information, which should help to prevent leaks. Furthermore, NDAs are an excellent way to keep a relationship comfortable and trusting.
Violating an NDA is not considered a criminal offense. However, breaking an NDA might be viewed as a crime, such as stealing trade secrets. Violating a non-disclosure agreement will make you face the consequences outlined in the contract.
Suppose a person or company violates a non-disclosure agreement. In that case, they will usually be sued, resulting in fines, termination of employment, or whatever was agreed in the contract.
4. Help maintain business relationships
NDAs are helpful in maintaining essential business relationships. An NDA provides peace of mind in long-term business ties where secret data must flow between the parties. The parties involved can rest assured that their confidential information is secure.
Signing an NDA may allow you to seek commercial relationships that you would otherwise be hesitant to cultivate, as well as provide you with peace of mind over current ongoing relationships.
With clear and written expectations, everyone is on the same page.
This can help avoid disagreements between the parties and keep the relationship strong.
There are a few types of non-disclosure agreements:
- unilateral
- bilateral
- multilateral
Unilateral NDAs are the most common. Also known as one-way non-disclosure agreements, unilateral NDAs require only one party to disclose confidential information to the other.
Bilateral NDAs require both parties to disclose confidential information to each other. Both parties can limit how the other party uses and shares their information.
Multilateral NDAs involve three or more parties, with at least one disclosing information to the others. The parties will also require the other partakers to keep that information confidential.
Examples of confidential information in a business:
- employee and contractor records
- business and marketing plans, strategies, and programs
- unreported financial results, financial projects, and budgets
- pricing, sales data, customer lists, and information
- supplier and vendor lists and information
- operating methods and production procedures
- software development tools and documentation
- technical, engineering, and scientific research
- blueprints and designs
- trade secrets, know-hows, and patent applications
- terms of contracts
Examples of non-disclosure agreements:
Employer-Employee NDAs
Companies own a diverse range of valuable intellectual property, including commercial, trade, and technical information. Any leakage of such information to a competitor or third party who is not bound by the duty of confidentiality will cause irremediable damage to the company’s business because the information’s confidentiality is lost forever.
It’s become standard practice for companies to sign NDAs after a successful hiring interview. Depending on the position, it’s the company’s responsibility to clarify as soon as possible what is confidential.
By requiring employees to sign NDAs, you may rest confident that your company is safe; However, some employees may be uneasy signing this contract.
Employees who violate certain confidentiality agreements may be fired and required to pay liquidated damages, which is a set amount of money they must pay for each breach.
Seller-Buyer NDAs
Sellers can use NDAs to prevent buyers from disclosing confidential information obtained during the sale of goods or services. They typically prohibit buyers from revealing details about business operations, production processes, intellectual property, and technical or scientific information.
Company-contractor NDAs
These NDAs can be used by businesses to prevent contractors from sharing confidential company information. Company-contractor NDAs, like employer-employee NDAs, prevent contractors from sharing critical business information that could jeopardize the company’s competitiveness.
Tips for writing an NDA
Non-disclosure agreements are an excellent tool for protecting your organization’s information; Here are the core things that you should have in mind when writing an NDA:
- Identify the parties;
- Know which information is considered confidential;
- Clearly define obligations for each party;
- Set the term for the agreement;
- State the consequences;
- Express potential exclusions;
Using a template and then adding your specific information should save you much time when dealing with writing your first NDA.
You can find multiple types of non-disclosure agreement templates on the internet. We recommend using the template provided by the European Commission or this one from the Society for Human Resource Management.
Writing your own NDA might be an option, but sometimes it is best to consider cooperating with a legal professional to help you write your NDA.