An NDA is a legal agreement that states that the signees won’t disclose any confidential information that they receive.
An NDA—also called a confidentiality agreement—is legally binding and establishes a confidential relationship between the parties.
NDAs are common for B2B negotiations, so that the parties can share confidential information without worrying that it will end up in the hands of their competitors.
Employees can also be asked to sign NDAs if they have access to sensitive information as part of their work. Some companies might even require all employees to sign.
NDA examples
Example 1.
You’re contacted by a business who is looking to secure a supplier on a long-term basis. In order to work out whether you’re the right fit, you have to enter into negotiations with them.
Since they don’t want sensitive business or product information to get shared with competitors or other suppliers, they ask you to sign an NDA before you start negotiations. This is called a non-mutual non-disclosure agreement.
Example 2.
You and another business are considering entering into a mutually beneficial partnership. To figure out how to move forward—and if there’s even a profitable way forward—you have to share confidential business information with each other.
In this case you sign an NDA that forbids either of you from sharing information you receive as part of these talks. This is called a mutual non-disclosure agreement.
What’s protected by an NDA
An NDA can protect all sorts of company data, for example:
- Information about potential clients and customers
- Information about suppliers and their data
- Information about how a product is created
- Information about marketing and sales strategies
- Proprietary information, which is information that gives a business an edge, but that isn’t protected by law like intellectual property—copyrights, trademarks and patents.
If one of the parties breaks the NDA the other party can seek court action to avoid more information being disclosed. The party who broke the NDA can also be sued and have to cover damages that resulted from the sensitive information being shared.