Why Are Non-disclosure Agreements Important?

Association of Business Training
January 31, 2013 — 1,839 views  

There are several factors that require consideration when drafting or reviewing a non-disclosure or confidentiality agreement. The agreement’s perspective is based on whether confidential information is primarily received or disclosed. Following are a few points to be remembered when creating a non-disclosure agreement (NDA).

Need for NDA

Creating an NDA will ensure that all of your company’s confidential data remains intact. CEOs and CFOs are the main figures involved in drafting NDAs. Entering into a confidentiality agreement enhances the risk of the recipient facing charges on grounds of trade secret dishonesty. If similar information as mentioned in the agreement is developed, used, or inadvertently disclosed in the future, the recipient may face serious legal action.


Every NDA has a couple of important restrictions. The provision for non-disclosure prevents recipients from leaking a company’s private data to third parties. On the other hand, the provision for non-use prevents recipients from making use of the data other than for particular purposes. In certain cases, NDAs may not comprise a provision for non-use. Such an agreement enables recipients to use a company’s confidential information for their own use without disclosing the said information to other parties.

Confidential Information

The definition of private or confidential information must be made clear before entering into a non-disclosure agreement. It may be narrowed down by limiting the confidential information to data disclosed in writing. The private information must also be specifically marked on the agreement document, specifying the data that is considered confidential. The dates on which disclosure can be made must also be specified in the agreement.

Exceptions to Private Data

Recipients usually expect broad exceptions when it comes to entering into a confidentiality agreement. Typical exceptions include data that is publicly known before the NDA is signed, data that is already in the recipient’s possession, information gathered by recipients from third parties, and data that is independently established by recipients. In all cases where a recipient has gathered confidential information about the discloser prior to the signing of the non-disclosure agreement, no confidentiality restrictions must be breached.              

Residual Information

Recipients of any non-disclosure agreement are advised to add a clause that enables them to use the information of the discloser that is preserved in the memory of its employees. A residual clause may be included by the recipient, but the discloser will have the final say on its limitations. The aim of the discloser is to protect all confidential information, and in order to do so, recipients may not be granted licenses for the use or disclosure of any such information.

Permitted Disclosures

When you enter into a non-disclosure agreement, the discloser limits the access of confidential information to contractors and employees on the basis of need-to-know. In such a case, the recipient will only have access to the information disclosed by the discloser company. If the recipient wants to use the information, prior notification must be sent to the discloser.

The usual term of an NDA is 3-5 years. A confidentiality agreement is crucial to protecting the interests of your company, so make sure that utmost care is taken while drafting the document.  

Association of Business Training