NDA (Non-Disclosure Agreement) Definition
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Non-Disclosure Agreement (NDA) Definition
A non-disclosure agreement is a common contract used by employers to prevent outside parties from disclosing confidential information to the outside world.
Companies working with members outside of the organization often must reveal sensitive information in order for the outside party to help the company, such as a consultant needing a company’s profit margins in order to provide guidance.
The purpose of an NDA is to protect the valuable intellectual property of a company, including patents, trade secrets, customer lists, production methods and marketing know-how.
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An NDA has four major components:
- The definition of confidential information and how a person will know what information is confidential. Usually information already known by a person or told to them by an outside party is not confidential.
- The length of time the person cannot disclose confidential information, often extending into perpetuity.
- A list of people who the information can be disclosed to. This often includes employees, lawyers and accountants of the person as well as the government when the information is required to be disclosed under law.
- Penalties for disclosure of confidential information, often including the right to money damages as well as the right to force the person to stop disclosing the information.
In addition to the four major components, an NDA can specify whether the NDA be mutual or non-mutual, binding all parties to confidentiality, or only one.