5 Essential Elements of an NDA

Although a nondisclosure agreement, or NDA, may be one of the most basic legal agreements, it’s among the most important. A carefully crafted NDA will prohibit the unauthorized use of confidential information, thereby protecting your trade secrets and that million dollar idea. You can create your own NDA here.

Nondisclosure agreements are typically initiated at the beginning of a business relationship between two or more parties. In most negotiations, NDAs are not meant to be permanent. Rather, they serve as an interim document while the terms, including a new set of confidentiality provisions, of a final contract are agreed upon.

To be sure you are protected*, your NDA should contain the following elements:

  1. Party definitions: Who is involved in the agreement? In a one-way agreement, one party is defined as the discloser and another as the recipient. In a two-way or mutual agreement, both parties disclose and receive information.
  2. Confidentiality: Describes the purposes (if any) for which the receiving party may use the information. Provisions for copying and sharing information are clearly defined.
  3. Duration: Defines the date of the agreement and how far the term of the agreement extends. The discloser can specify whether or not confidentiality obligations and restrictions on use may extend beyond the term of the agreement.
  4. Protection: Which information is to be protected? The agreement should specify any information which is inherently confidential, proprietary or sensitive.
  5. Remedies: What happens if either party breaches the contract? This section may describe the types of payment or rights forfeited by the party who breaks the agreement.

Now that you know what to include in your NDA, it’s important to note that if the contract is breached, it’s possible that your secret will become public knowledge. Although you may be awarded some cash (perhaps $70 million) for the other party’s violation, it might come at the risk of losing valuable secrets to your competition.

*This post suggests a document drafting guideline and is not legal advice. For that, you should consult your lawyer.

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