In a world where every minute counts and there is a new technological innovation every day, businesses are striving to stay ahead of the curve. However, the growing pressure to stand out in the race of industrial pressure has incorporated several new risks. In this risk-prone business environment, establishing trust is imperative to strengthen corporate bonds with customers, stakeholders, and vendors. Yes, digital transformation is essential to stay relevant and competitive, but the next big dilemma faced by businesses is to ensure digital security and trust.
In business, there are numerous instances where you may need to share confidential information with another person. But before doing so, you need to ensure the other person is bound to respect the information you share and not use it to your detriment. The most common way to secure confidential information is through a Non-Disclosure Agreement (NDA). Dive in to learn everything you need to know about NDAs – what to include, where to use them, and how to sign.
Non-disclosure agreements, also known as confidentiality agreements, confidentiality disclosure agreements, or non-disclosure contracts, are legally enforceable contracts creating a confidential relationship between two parties – one who wants to share sensitive information and another who will gain access to that information. A confidential relationship between two persons requires them to keep the secrecy of sensitive information and not to share it with anyone. Most commonly, NDAs are widely used in organizations that need to share sensitive information with employees or clients. For instance, you might often need to sign an NDA at the beginning of an extensive financial exchange or business relationship. Non-disclosure agreements differ from other business contracts, such as sales or service agreements – NDAs focus on an individual’s or organization’s privacy.
A non-disclosure agreement creates a legal framework that protects confidential information and business ideas from being stolen or shared with third parties. The contravention of an NDA has its own set of consequences, such as financial penalties, criminal charges, and lawsuits. One can also cover accidental breaches under an NDA. The agreement performs three essential functions:
- Identifying the protected information
- Protecting sensitive information
- Protecting patent rights
It is well-known that NDAs restrict employees, stakeholders, advisors, and partners from disclosing or using confidential information. But how do we categorize NDAs? And what category should your NDA fall under? Here are three types of non-disclosure agreements:
Unilateral NDAs are generally one-way agreements that require only one party to disclose its confidential information to the other party. Unilateral is the most common type of NDAs that is increasingly used by organizations while sharing confidential company information with advisors, employees, partners, clients, and other stakeholders.
Bilateral NDAs, also known as mutual or two-way non-disclosure agreements, require both parties to share sensitive information with each other – with the limitation for further sharing and usage of the shared information. Businesses can use mutual NDAs in situations such as business negotiations, corporate takeovers, acquisitions, and joint ventures.
As the name suggests, multilateral NDAs incorporate multiple parties (three or more), where one of them needs to disclose the information to other parties. You don’t necessarily need to use separate bilateral or unilateral NDAs with multilateral agreements, which are often encountered in complex, negotiation-heavy deals.
What to include in an NDA?
Typically business contracts are often stuffed with legal jargon that may confuse a reader. Moreover, they are complex because of the stringent security requirements. But non-disclosure agreements don’t have to be lengthy and complicated. Let’s take a closer look at what should be included in an NDA:
- Parties to the agreement:
Identification of parties involved in the non-disclosure contract is necessary to differentiate who is disclosing confidential information and who is the recipient – along with their names and addresses. Adding associated parties such as accountants, business partners, or attorneys is always beneficial.
- Definitions to discriminate what is deemed to be confidential:
An NDA must clearly contain a section with the information covered by the agreement and establish rules to outline the data handling. In a nutshell, it describes what information is confidential.
Whenever you break any contract or agreement, legal consequences are awaiting in the future. The same goes with the NDAs – an NDA should not only cover specific expected behavior from each signatory but also pitch in the consequences in case of a breach.
The scope should be clearly defined in an NDA to ensure its enforceability. For example, you cannot use general terms such as proprietary information; you need to clearly define a specific type of information that needs to be covered.
- Time span:
NDAs typically don’t last forever; many confidentiality agreements clearly define the number of years the agreement will be bound for. Moreover, the agreements having an indefinite time span often demonstrate when the information will no longer be protected.
- Return of information:
Once the financial transaction or business settles, an NDA must require the recipient to confirm the return or demolition of sensitive information.
- Exclusions from Confidentiality:
Not everything needs confidential treatment; certain types of information do not need to be kept confidential. This includes previously disclosed data, information known by someone before entering the business, or public knowledge.
- The term of the agreement:
In case of a contract breach, the possible actions or remedies should be clearly defined. This might include a range of repercussions, such as restraining orders or payment for damages. These remedies might differ according to the type of infringement – data, copyright, patent, or trademark breach.
- Digital Signatures:
Although it is rare that an NDA contains forged signatures, you cannot ignore the risks that become imminent when your physical document is handled by several parties. Using a digital signature solution to sign an NDA online frees you from risks that are associated with fraud, forgery, handling, loss, damage, etc. At the same time, using an online signature generator also saves you from miscellaneous costs on paper, administration, stationery, and other material.
Where to use an NDA?
There are countless instances where you might want to use a non-disclosure agreement to safeguard your confidential information. If you are hiring a new employee, onboarding a new client, or getting into deals with other businesses – you definitely need an ironclad solution to protect your or your company’s sensitive information from being stolen or shared illegally. Here are a few typical examples of the instances where you may want to use an NDA:
- Sharing a company’s confidential and proprietary information with an employee to perform a certain job.
- Sharing a new product or technology with a potential buyer.
- Exchange of products or services as part of the business with the clients.
- Presenting a business idea to the investors or distributors.
- Performing large-scale financial transactions.
Electronically Signing an NDA
Contracts and agreements have become more complex with the emergence of new risk and compliance regulations. At the same time, the continuous innovations and business pace are forcing organizations to enter a risk-prone environment unknowingly. We all use contracts to bind things to specific laws and rules. Large enterprises are probably dealing with hundreds or thousands of confidentiality agreements – detailing everything from terms, duration, severability, confidentiality, obligations, and several other things. If you need to share confidentiality agreements on a regular basis, e-signature solutions are a savior. You can upload documents in bulk using an e-signature solution, create templates and save them, invite multiple signatories to sign, and much more.
It’s a wrap!
Who doesn’t want convenience at their fingertips? Most certainly when it is not only saving you numerous hours but helps reduce your paper usage, several other costs associated with paper handling, and, most importantly, your carbon footprint. DrySign, a leading digital signature solution, provides a vast range of intelligent features to help you thrive in the modern business market. With DrySign, you can easily create NDAs, send them to multiple people for signing, get them signed online within minutes, track the status, create reminders, invite multiple signatories, bulk send, and create pre-defined templates for future reference. So start DrySigning now – Try our free version and step into a world of total digital transformation.
DISCLAIMER: The information on this site is for general information purposes only and is not intended to serve as legal advice. Laws governing the subject matter may change quickly, and Exela cannot guarantee that all the information on this site is current or correct. Should you have specific legal questions about any of the information on this site, you should consult with a licensed attorney in your area.