Nondisclosure Agreement

What is a Nondisclosure Agreement?

A nondisclosure agreement, which is also referred to as a confidentiality agreement, a proprietary information agreement or a confidential disclosure agreement, is a legally-binding contract formulated between at least two parties to outline confidential material, intelligence or any information that the parties wish to share with one another, but wish to restrict access to by third parties and the general public. The nondisclosure agreement is a formal contract through which the participating parties agree not to disclose pertinent company-specific information latent in the agreement. The nondisclosure agreement creates a confidential relationship between the active parties that solidifies the protection against any type of confidential or proprietary information involving the underlying company’s trade secrets or business plan. It enforces it’s participants to adhere to the stipulations of the contract; if an individual violates a nondisclosure agreement and makes the latent information public or divulges the secrets to a third party the individual will be held in contempt and may face legal charges.

How is a Nondisclosure Agreement Formed?

Nondisclosure agreements are commonly formed (or signed) when two companies, entities (for example partnerships) or individuals are considering doing business and need to understand the processes used in each other’s business dealings for the purpose of evaluating the assumed business relationship. In essence, the nondisclosure agreement is a pact that enables participating companies or individuals to evaluate the future outlook and specifics associated with a business deal. Obviously, to ensure trust and to solidify understanding, the material expressed in the nondisclosure agreement is extremely sensitive. As a result, the nondisclosure agreement enforces, through the possibility of legal persecution or the understanding of termination, the participants to keep the information themselves. A nondisclosure agreement may be initiated in a mutual setting, meaning both parties are equally restricted in using the material provided, or they can formulate the contract to restrict one of the participating parties from accessing the information. Furthermore, it is possible for an employee to sign a nondisclosure agreement with his or her employer. As a matter of fact, many employment contracts will include a clause restricting employees from using or disseminating company-owned or confidential information.


What is expressed in a Nondisclosure Agreement?

The majority of nondisclosure agreements are distributed as uni-lateral (one-way) contracts. In the typical nondisclosure agreement, one party will wish to disclose certain information to another party but needs to make sure that the information is kept secret. The information may be required to be kept confidential for a number of reasons, including to satisfy patent laws or to make sure that the receiving party does not take and use the disclosed information for their own personal game. A nondisclosure agreement may also be established in a mutual fashion, where both parties supply information that is intended to remain secret. This nondisclosure agreement is common when business entities are considering some kind of merger or joint venture. A nondisclosure agreement may protect any type of information that is not typically known; however, the agreement may also contain clauses that will protect the individual receiving the information so that if the information is obtained through other sources, they will not be held accountable or obligated to keep the information secret.

In general, the following issues are commonly expressed in a nondisclosure agreement:


• Outlines the parties involved in the agreement

• Define what is confidential

• Define the disclosure period

• The exclusions from what must be kept confidential

• Provisions restricting the transfer of data

• The obligations of the recipient regarding the confidential information