What Is an NDA, and When Do You Need One?
A plain-language look at non-disclosure agreements, what they cover, and how a mutual NDA protects both sides.
NDA stands for non-disclosure agreement. It is a written promise to keep certain information private. Businesses use NDAs when they are about to share something sensitive with another person or company and want it protected.
When people use one
- Talking to a possible business partner or buyer
- Sharing a plan or idea with someone who might help build it
- Giving a contractor or freelancer a look at customer lists, prices, or methods
- Showing your books to an investor or lender
One-way or mutual
A one-way NDA protects one side. Only one person is sharing secrets.
A mutual NDA protects both sides. Each person will share private information, and each promises to protect the other's. When both sides are exploring a deal together, a mutual NDA is usually the fairest choice.
What an NDA usually says
- What counts as private. Business plans, finances, prices, customer lists, designs, software, and methods.
- What does not count. Information that is already public, that the other side already knew, or that comes from someone else legally.
- What the receiver must do. Keep it secret, use it only for the stated purpose, and share it only with people who need to know.
- How long it lasts. The agreement has a term, and the duty to keep secrets usually continues for some years after.
- What happens at the end. The receiver returns or destroys the information.
Tips
- Sign before you share anything private.
- Say the purpose clearly. It limits how the information can be used.
- An NDA protects information, not an idea in general. Once something is public, it is no longer protected.
- Keep it fair. Overly harsh NDAs scare people off, and some terms may not be enforced.