What Is a Non-Disclosure Agreement?

A non-disclosure agreement (NDA) is a legally binding contract between two or more parties that establishes a confidential relationship. The parties agree that certain information they share will not be disclosed to third parties without authorization.

NDAs are one of the most common business agreements used today. They protect trade secrets, business strategies, client information, financial data, and any other proprietary information that gives a company its competitive advantage.

How Does an NDA Work?

An NDA creates legal obligations for the receiving party (the person or entity that receives confidential information) to:

• Keep the information confidential and not disclose it to others
• Use the information only for the purpose specified in the agreement
• Take reasonable measures to protect the information from unauthorized access
• Return or destroy the information when the agreement ends

If the receiving party violates these obligations, the disclosing party may seek legal remedies including injunctive relief (a court order to stop the disclosure) and monetary damages.

What Does an NDA Typically Include?

A well-drafted non-disclosure agreement typically contains these key sections:

• Definition of Confidential Information — specifies exactly what information is protected
• Obligations of the Receiving Party — details the duties to maintain confidentiality
• Exclusions — information that is not covered (e.g., publicly available information)
• Term and Duration — how long the agreement remains in effect
• Permitted Disclosures — when the receiving party may legally share the information (e.g., court order)
• Remedies — what happens if the agreement is breached
• Governing Law — which jurisdiction's laws apply

When Should You Use an NDA?

Non-disclosure agreements are commonly used in these situations:

• Sharing a business idea with potential investors or partners
• Hiring employees who will access proprietary information
• Working with freelancers or contractors on sensitive projects
• Discussing potential mergers, acquisitions, or licensing deals
• Sharing technical information with vendors or service providers
• Engaging in joint ventures or collaborative research

Types of NDAs

There are two primary types of non-disclosure agreements:

• Unilateral NDA — one party discloses confidential information; the other agrees to protect it. Common in employer-employee or client-contractor relationships.
• Mutual NDA (Bilateral) — both parties share confidential information and agree to protect each other's data. Common in partnerships, joint ventures, and business negotiations.

Learn more about the differences in our guide on mutual vs. unilateral NDAs.

Are NDAs Legally Binding?

Yes, when properly executed, non-disclosure agreements are legally binding contracts. They are enforceable in court, and violations can result in significant damages. Electronic signatures are legally valid under the ESIGN Act and UETA in the United States. For more details, see our article on NDA enforceability.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. For legal advice specific to your situation, consult a qualified attorney.