日本人

Importance of a Non-Disclosure Agreement

Home     Articles      Importance of a Non-Disclosure Agreement

Importance of a Non-Disclosure Agreement

July 16, 2021

Often, the biggest concern of a business entity is  protecting its confidential information that keeps its business unique and competitive. Whether it be protecting the intellectual property at its early stages, or just wanting to keep early commercial discussions private, or ensuring that information may not be disclosed by the employees of the organisation, the solution is a Non-Disclosure Agreement. (“NDA”).

WHAT IS A NON-DISCLOSURE AGREEMENT?

A Non-Disclosure Agreement in simple words is a confidentiality agreement. It is an agreement by the parties not to disclose information to any other party. A Non-Disclosure Agreement is a legal contract between parties who are about to share confidential material, information or knowledge; and want to ensure that the same  is kept confidential.

There are two main types of NDAs.

Unilateral NDA:  Unilateral NDA wherein the party that is disclosing the information prohibits the recipient party from disclosing any information shared to the disclosing party.

Mutual NDA: A mutual NDA, on the other hand, works both ways. In a Mutual Non-Disclosure Agreement both parties are prohibited from disclosing any information shared.

KEY ELEMENTS OF NON-DISCLOSURE AGREEMENT:

A few of the major elements of an NDA include (not limited to the following):

  1. Identification of the parties that are signing the agreement. 
  2. A precise definition of what is considered confidential under the agreement .
  3. The clear reason as to why the information is shared and for what purpose.
  4. An elaborated explanation as to how the shared information can and cannot be used.
  5. Explicit information about the timeframe or the duration of the agreement.

WHEN IS A NON-DISCLOSURE AGREEMENT NEEDED:

  1. There are various circumstances in which an NDA may be required.In the event where a business entity is about to pitch to investors, it may want to have an NDA signed to make sure that any confidential information or knowledge shared about the business model is not disclosed to any other party.
  2. In the event where a business is about to engage in a business with another party, and will be disclosing business sensitive and key information, an NDA is an essential to ensure  that that the information is not disclosed.
  3. In the event that an entity is engaging with investors, suppliers, contractors, researchers and  other any other kind of service providers, all such parties will have access to confidential business information and an NDA is an essential to protect information.

Information shared in all the above events could include anything from internal business administration documents to client databases which  are intangible assets to the disclosing party and may be misused or cause loss if shared. An NDA prevents any such disclosure which keeping the business entity unique from its competitors.

IMPORTANCE OF AN NDA:

Whenever a business entity is  engaged in an important commercial discussion, it is always important to ensure an NDA is signed between the parties which  instils a degree of trust and confidence, which in turn can assist in open negotiations.  

As stated above, the signing of an  NDA grants more trust between the parties signing the NDA and  ensures that despite heavy negotiations, agreements, disagreements, the information is protected at all times. It deters the theft, misuse, misrepresentation of intellectual property.

NDA is signed at the very beginning of the negotiations between business entities, even when it is still uncertain as to whether the parties will agree to come together to enter into a business agreement. In such circumstances, information is shared between parties in order to make evaluations, analyse the market, make predictions about the future project. In the event that the deal falls apart at the negotiation stage, the parties can be sure that the shared data will not be used against them or transferred to third parties.

NDA is also important to protect information from being misused or shared with a third party by an intern or an employee of a business entity.

The main intent behind signing of an NDA is to protect information shared, therefore it ensures that the privacy and confidentiality of information shared is safe as it reduces the scope of breach of any disclosures which will give the aggrieved party a resort to sue the other party.

Since NDA is a legal document, it is of immense importance for avoiding and resolving any conflict that might arise in the future. Any party infringing the agreement would be legally liable to compensate for damages. It clearly states (in written format), anything that comes under the bracket of ‘confidential’, in the long run avoiding any ambiguity or loss of information.

Overall, an NDA protects disclosures of intellectual property (including trade secrets, proprietary information and other confidential information), safeguarding a business entity as a whole.

Author: Kavya Velagala, Associate.

Disclaimer: The content of this article is intended to provide a general guide to the subject matter and that the same shall not be treated as legal advice. For any queries, the author can be reached at kavya@samistilegal.in

Join Our List To Stay In Touch

Leave your email id to receive regular updates on
corporate law changes that have impact on businesses.