What is an NDA?
A reference guide to Non-Disclosure Agreements: when they apply, what to include, and common drafting considerations.
Table of Contents
1. What is an NDA?
A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legally binding contract that establishes a confidential relationship between parties. The party or parties signing the agreement agree that sensitive information they may obtain will not be made available to others.
NDAs are commonly used in business settings to protect trade secrets, business strategies, client lists, proprietary technology, and other confidential information that gives a company its competitive edge.
Key Point
An NDA creates legal consequences for breaching confidentiality. If someone violates the agreement, you can sue for damages and potentially get an injunction to stop further disclosure.
2. Types of NDAs
Unilateral (One-Way) NDA
Only one party discloses confidential information, and the other party agrees to protect it. Common in employer-employee relationships or when sharing business plans with potential investors.
Mutual (Two-Way) NDA
Both parties share confidential information and agree to protect each other's secrets. Common in joint ventures, partnerships, mergers, or any situation where both sides need to share sensitive data.
Multilateral NDA
Three or more parties are involved, where at least one party discloses information. This eliminates the need for separate bilateral NDAs between each party.
3. When Do You Need an NDA?
You should consider using an NDA whenever you need to share sensitive information with another party. Here are common scenarios:
- ✓Hiring employees or contractors who will access sensitive data
- ✓Pitching your business idea to potential investors
- ✓Discussing a potential partnership or joint venture
- ✓Engaging in merger and acquisition negotiations
- ✓Sharing trade secrets with manufacturers or suppliers
- ✓Working with consultants or advisors
- ✓Licensing your technology or intellectual property
4. Key Clauses in an NDA
A well-drafted NDA should include these essential elements:
Definition of Confidential Information
Clearly specify what information is considered confidential. Be specific but comprehensive enough to cover all sensitive data.
Obligations of Receiving Party
Detail how the receiving party must handle, store, and protect the confidential information.
Exclusions from Confidentiality
List information that is NOT considered confidential (publicly available info, independently developed info, etc.).
Time Period
Specify how long the confidentiality obligations last. This can range from 2-5 years or indefinitely for trade secrets.
Return or Destruction of Information
Require the receiving party to return or destroy all confidential materials when the relationship ends.
Consequences of Breach
Outline remedies available if the agreement is violated, including monetary damages and injunctive relief.
5. Common Mistakes to Avoid
X Being too vague
✓ Clearly define what constitutes confidential information. Vague definitions may not hold up in court.
X Making it too broad
✓ An overly broad NDA might be deemed unenforceable. Be reasonable in scope.
X Forgetting exclusions
✓ Always include standard exclusions for publicly known information and independently developed materials.
X No time limit
✓ Specify a reasonable duration. Indefinite NDAs may be challenged unless protecting true trade secrets.
X Not specifying jurisdiction
✓ Always include which state/country's laws govern the agreement and where disputes will be resolved.
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Download NDA Template →Frequently Asked Questions
Is an NDA legally binding?
Yes, when properly drafted and signed, an NDA is a legally enforceable contract. Breach of an NDA can result in lawsuits for damages and injunctive relief.
Can I write my own NDA?
Yes, but it's recommended to use a professionally drafted template or consult with an attorney to ensure it's enforceable and covers all necessary elements.
How long should an NDA last?
Typically 2-5 years for general business information. Trade secrets may be protected indefinitely. The duration should be reasonable for the type of information being protected.
What happens if someone breaks an NDA?
You can sue for damages (monetary compensation for losses) and seek an injunction (court order to stop further disclosure). The specific remedies depend on the terms of your NDA.
Practical Implications
Who this affects
- —Business owners sharing proprietary information
- —Employees and contractors under confidentiality obligations
- —Parties entering negotiations or partnerships
Immediate risk
An inadequately drafted NDA may fail to protect trade secrets or be deemed unenforceable due to overbreadth.
Next procedural step
Review existing NDAs for clearly defined scope, reasonable duration, and enforceable remedy provisions.
Sources are presented in normative order. Lower-tier materials do not override higher-tier authority.
- –18 U.S.C. § 1836— Defend Trade Secrets Act — federal civil cause of action for trade secret misappropriation
- –18 U.S.C. § 1839— Definitions — trade secret, misappropriation, and improper means
- –Uniform Trade Secrets Act (UTSA) § 1— Model state law — definitions of trade secret and misappropriation (adopted in 48 states)
- –N.Y. Gen. Oblig. Law § 5-701— Statute of frauds — agreements required to be in writing
- –Restatement (Third) of Unfair Competition §§ 39–45 (1995)— Trade secret definition, duty of confidence, and remedies for breach
Cite This Entry
EchoLegal, “What is an NDA? Non-Disclosure Agreement Explained,” EchoLegal Legal Encyclopedia, v2.1 (last updated Jan 25, 2026), https://echo-legal.com/en/encyclopedia/what-is-nda.
What is an NDA? Non-Disclosure Agreement Explained, EchoLegal Legal Encyclopedia (last updated Jan 25, 2026), https://echo-legal.com/en/encyclopedia/what-is-nda.
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