Non-Disclosure Agreements What to Include and What to Watch For
An NDA is often the first legal document in a business relationship and one of the most frequently misunderstood. A poorly drafted NDA offers false security. Here is what you actually need.
What is an NDA?
A Non-Disclosure Agreement (NDA) also called a Confidentiality Agreement is a contract in which one or both parties agree to keep certain information confidential and not disclose it to third parties without authorization. NDAs are used whenever sensitive information is shared: in potential acquisitions, investor discussions, employment relationships, supplier negotiations, and technology licensing.
Unilateral vs. Mutual NDAs
A unilateral NDA protects only one party's information for example, a company sharing its business plan with a potential investor. A mutual NDA protects both parties' information for example, two companies exploring a joint venture where each is sharing sensitive details.
Key Provisions Every NDA Needs
1. Definition of Confidential Information
The most critical clause and most commonly botched. The definition must specifically cover what you intend to protect. Common approaches: a category-based definition (financial information, customer lists, technical data, trade secrets); a marking requirement (information is only confidential if marked as such); or a catch-all covering all information disclosed for the stated purpose. Overly broad definitions with no carve-outs risk being unenforceable.
2. Standard Exclusions
Legitimate exclusions that every NDA should include: information already publicly available through no fault of the recipient; information the recipient already knew before disclosure; information independently developed without reference to the confidential information; and information required to be disclosed by law (though the recipient should notify the disclosing party first).
3. Permitted Use Clause
Confidential information should only be used for the specific stated purpose for example, "evaluating a potential acquisition." Use for any other purpose, including competing with the disclosing party, must be explicitly prohibited.
4. Term and Post-Termination Obligations
How long does the obligation last? Typically 2–5 years for general business information; indefinitely for trade secrets. Specify what happens to confidential information on termination return it or destroy it.
5. Remedies for Breach
Include an acknowledgment that breach causes irreparable harm and consent to injunctive relief this makes it easier to get an emergency court order without having to prove quantifiable financial damages.
What to Watch For When Signing
Red flags in an NDA you are being asked to sign:
- Extremely broad definition of confidential information with no carve-outs
- Survival period of 10 or more years
- Restrictions on using general skills and knowledge you acquire this can limit your future career
- Assignment clause allowing the NDA to be transferred to any acquiror including competitors
- Unilateral NDA when you are also sharing information