Non-disclosure agreement (NDA)
A contract obliging parties to keep shared information secret and use it only as agreed.
Definition
A non-disclosure agreement is a contract (one-way or mutual) that binds the recipient of confidential information to keep it secret and to use it only for the stated purpose. NDAs typically define what counts as confidential, list exceptions, and set how long the obligation lasts. They are often signed before negotiations, due diligence, or technical evaluations begin.
Example
Two start-ups sign a mutual NDA before exploring a possible merger, so each can review the other's financials safely.
Why this is a business risk
An NDA signed without checking its scope, duration, or exceptions can give a false sense of security. A one-way NDA protects only the disclosing party; if both sides share sensitive material, a mutual NDA is needed. Companies that rely on template NDAs often find them too vague to enforce or inconsistent with the actual flow of information.
How to manage it
- Decide at the outset whether the NDA should be one-way or mutual, based on who is sharing what.
- Define the permitted purpose narrowly: "evaluating a potential partnership" is better than "any business purpose".
- Set a realistic duration: perpetual NDAs are often unenforceable; two to five years is standard for most commercial disclosures.
- List standard exclusions clearly: information already public, independently developed, or required to be disclosed by law.
Frequently asked questions
Common questions about this term.