What is a Non-Disclosure Agreement (NDA)?

A non-disclosure agreement is a legal contract that creates a confidential relationship between two or more parties. According to this contract, the information shared among these parties cannot be made available to any party other than the parties involved in this agreement. This is also called confidentiality agreement, confidential disclosure agreement or propriety information agreement.

How Does a Non-Disclosure Agreement Work?

NDA is a written contract signed by all the parties involved in order to make sure no information or knowledge covered under the agreement is revealed to a third party. A non-disclosure agreement is often signed by two companies engaged in a business transaction. This agreement makes sure the confidential information and knowledge about the business processes of the involved companies are not revealed in public. Employers may also want their employees to sign a non-disclosure agreement while the employee is hired for a job that has access to the sensitive information. By entering into this agreement, an employee agrees to keep this information secret and not to reveal it to anyone outside the company. A company may also ask individual contractors or vendors who have access to the company's trade secret, business innovation, or propriety software to sign a non-disclosure agreement. Signing a non-disclosure agreement is a common practice by many companies operating across different industries. The information covered under non-disclosure agreement includes marketing strategy, sales plan, manufacturing technique, existing or potential customer list, intellectual property, innovative ideas, and others. The parties involved in a non-disclosure agreement are legally obligated to follow the terms of the agreement, failing to do so may invite monetary fine. On such occasions, the other parties may legally challenge them in court and demand financial compensation for the damage. A non-disclosure agreement may have several elements according to the particular need, but typically an NDA must have six main components. Those components are the names and details of the parties involved, the definition of what constitutes a confidential information, exception from confidential information, the obligation of the parties, time period of the agreements validity and miscellaneous. At the beginning of an agreement, it must be defined who are the parties involved in the agreement. It should mention their names and addresses clearly. Following that there needs to be a section detailing what type of information is considered confidential in this agreement. This should be written in a way so that the actual information doesn't get revealed. Then there should be a section stating what are the exceptions from that confidentiality terms. The next section should clearly mention what are the obligations under that specific agreement. The time period of the agreement is required to be mentioned clearly at the end of the agreement. Also, any other information that may be deemed important should be included in a non-disclosure agreement. A non-disclosure agreement is a legal document, but it must be written in a straightforward easily understandable language for the ease of the parties involved.

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