Non-Disclosure Agreement
A non-disclosure agreement, also known as an NDA, is a binding agreement in which two parties exchange confidential information. The meaning of an NDA is confidentiality agreement. An NDA or confidentiality agreement specifies which information is confidential. It also describes what the party receiving the information may and may not do with the confidential information and for what purpose it is provided. What exactly is an NDA (non-disclosure agreement) and how does it work in practice?
Confidentiality clause confidential information
For an entrepreneur or company, it is very important to protect confidential information or knowledge and intellectual property and to ensure that this information remains secret if business partners or investors become aware of it. To ensure that this information is only used for the purpose for which it was provided, an entrepreneur can enter into a non-disclosure agreement with these parties.
The importance of an NDA / confidentiality agreement
An NDA or confidentiality agreement is important because it protects the confidentiality of sensitive information. The confidentiality agreement prevents this information from being used or disclosed by other parties. By drawing up a confidentiality clause, sensitive information such as financial figures, customer files and technical specifications remains confidential. It is therefore common practice for parties involved in important discussions to sign an NDA.
Confidentiality agreement in the event of a company takeover
An NDA agreement is important in discussions about a (potential) company takeover. When drawing up a company takeover contract, a confidentiality agreement is drawn up so that the buyer and seller can openly discuss all confidential and business-sensitive information after signing an NDA.
A merger or company takeover often involves due diligence, whereby the buyer conducts a thorough audit of the books and gains access to all inside information. The buyer wants insight into the seller’s administration and business operations. On the other hand, the selling party wants to see information in order to get a good picture of the buying party. This information is usually as valuable as it is competitively sensitive. A non-disclosure agreement makes it possible to freely exchange confidential information during the exploratory phase of a company acquisition.
What does a non-disclosure agreement (NDA) cover?
An NDA agreement allows parties to protect a wide range of information and company data. A non-disclosure agreement is generally used to protect sensitive company information, such as:
Customer information
- Names of key customers
- Key contact details and contacts
- Customer preferences and history
- Direct communication with customers
Financial information
- Specific financial information about customers
- Financial information that does not need to be disclosed
Intellectual property
- Patents, copyrights and intellectual property rights
- Technologies and trade secrets
- Anything a company uses as a competitive advantage
Marketing information
- Marketing techniques
- Invoicing policy
- Pricing strategies
Company information
- Personnel data
- Information about suppliers
- Payroll
- Internal costs that do not need to be disclosed
The above outlines a number of examples of matters and data that may be included in a non-disclosure agreement (NDA). Not everything can be kept confidential under a non-disclosure agreement. A non-disclosure agreement does not protect information that becomes publicly available, confidential information that a party discovers through legally independent means, and information that a party does not consider confidential. Information disclosed as a result of a court order is also not protected.
Key elements of an NDA: mandatory components
Drafting a non-disclosure agreement or confidentiality clause is a customised process. However, a number of topics recur in every non-disclosure agreement. First of all, the parties to whom the confidentiality clause applies must be clearly stated. It is then very important to provide a broad description of what needs to be protected by confidentiality. Next, it must be clearly defined what constitutes confidential information before the parties sign the NDA. It is often forgotten to include the term of an NDA. This can be determined by mutual agreement.
The most important components of a non-disclosure agreement are:
• The details of the parties involved
• The purpose of the cooperation between the parties
• Which information must remain confidential (and which must not)
• How the parties involved may use the information
• The duration of the confidentiality period
• Consequences of breaching the confidentiality agreement (penalty clause)
• The amount of the penalty for breaching the NDA
• The signatures of both parties for approval
Frequently asked questions about non-disclosure agreements (NDAs)
Signing an NDA is a familiar phenomenon for many companies and “part of the job”. Nevertheless, it is advisable to seek legal assistance when drafting, reviewing and signing a non-disclosure agreement. A solicitor specialising in mergers and acquisitions can provide targeted advice to the parties and ensure that sensitive business information remains confidential.
For entrepreneurs and investors who are less familiar with confidentiality agreements, our legal specialists have listed the most frequently asked questions about NDAs below.
What is the purpose of an NDA?
A non-disclosure agreement (NDA) enables parties to exchange confidential information. The NDA specifies which information is confidential (secret), the purpose for which this information is provided and what the recipient of the information may and may not do with it.
Who can sign an NDA?
Signing an NDA is normally a matter for the CEO or director of a company. If this person is unable to sign, the signature of a manager authorised by the board to sign an NDA is also sufficient.
Who is allowed to view the confidential information?
The NDA specifies who is allowed to receive the sensitive company information. This can be done in two ways. Parties can choose to name authorised recipients in the confidentiality clause. It is more common to stipulate that anyone who needs this information will have access to the confidential data.
Breach of an NDA: what are the consequences?
If the recipient of sensitive information breaches the confidentiality agreement, the provider of the data can claim damages. This can be done on the basis of an attributable breach of an NDA obligation. In the event of a violation, such as the disclosure of confidential information, the provider can also claim damages by invoking an unlawful act.
How long is an NDA valid?
The validity period of an NDA depends on what the parties agree. The duration of the confidentiality is closely related to the sector in which the parties operate and the information that is shared. In practice, this usually varies from 5 years after signing or from 5 years after the end of the collaboration. In the case of highly sensitive information, an indefinite duration may also be justified.
How do I ensure that an NDA is legally sound?
A legally sound non-disclosure agreement (NDA) contains clear definitions of what is considered confidential information, for what purpose that information may be used, who has access to that data and what should be done with the shared information after the agreement has expired. State explicitly how long the confidentiality applies and what the consequences are in the event of a breach. Consider whether it makes sense to include a penalty clause. Also include practical clauses; a common mistake is to use standard templates that are not sufficiently tailored to your situation or industry. Also make sure that it is clearly stated when there is no breach of the NDA even though information has become public. This may be the case, for example, if information has entered the public domain in another way or has been made public through other sources. Therefore, always have an NDA reviewed or drafted by an expert who understands what is at stake.
Duration and term of a confidentiality agreement
Some confidentiality agreements are valid indefinitely, while others contain information that may become public over time and therefore have a shorter duration. If the confidentiality agreement is international in nature, do not forget to specify which country’s law applies if the parties end up in a dispute. Although these core elements form the basis of a non-disclosure agreement, every confidentiality agreement is truly tailor-made.
Types of confidentiality agreements
NDAs are one of the most common types of commercial contracts. They come in all shapes and sizes. In addition to the purpose for which the agreements are written, an important distinction must also be made between unilateral and mutual NDAs. The former only protects the information of the party that provides the information and drafted the agreement, while the latter protects confidential information of both parties.
What needs to be protected by the non-disclosure agreement also means that the NDA agreement requires different content. For example, a confidentiality agreement in the case of a company takeover has different content than the confidentiality surrounding a settlement agreement when terminating an employment relationship. Other examples include a confidentiality agreement for an invention, information relating to a business venture and a media concept.
When should you draw up an NDA?
A company or entrepreneur with a unique invention, their own creative work or other type of intellectual property that is committed to a collaboration with or takeover by another company would be wise to enter into a written confidentiality agreement (NDA). This makes it possible to openly discuss a company takeover or merger plans without having to worry that the other party will take your ideas and implement them without permission. We therefore advise you to ask one of the specialist corporate law solicitors at Fruytier Lawyers in Business to draw up a non-disclosure agreement for you.
Drafting and reviewing confidentiality agreements
It is important that a confidentiality agreement is drafted correctly in order to protect your business interests as effectively as possible. Using a non-disclosure agreement example, we are happy to show you exactly what an NDA agreement is and what information is necessary for drawing up the confidentiality statement. Of course, we can assist you in drawing up an NDA document so that you can share sensitive business information with the other party without any worries. Please contact our solicitors for more advice and guidance.