Who is the disclosing party in a nondisclosure agreement?

The legal term “nondisclosure agreement” and the abbrevation “NDA” are often mentioned in the news. While it’s rare to read in the news about a lease or a purchase order linked to scandal, stories about unsavory employers, celebrities, and politicians using NDAs to silence whistleblowers have become a journalistic staple in recent years.

Though NDAs have become notorious as a way to keep things like out-of-court settlements quiet, the reality is that a nondisclosure agreement is a common, legitimate, and ethical tool for businesses to keep individuals from disclosing confidential information — such as client lists, sales strategies, or products in development — that would give competitors an unearned advantage.

While an NDA is a legally “enforceable” type of contract, it’s distinctly different from other types of contracts. It’s important to understand these differences so that you can write an NDA that provides the confidentiality you need.

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How an NDA differs from other contracts

Hear the word “contract,” and the first thing that likely comes to mind is buying or selling something, whether a product or a service. Contracts like these are the legal underpinning of business, and while they can be complicated for complex business deals, every contract of this sort — from a lease to a purchase order to a corporate merger — has some basic elements:

An NDA is distinct from other contracts because there’s no exchange of a product or service for money or anything else of value. The NDA is often a precondition to a subsequent contract in which there is an exchange — but not always.

The purpose of an NDA is to protect confidential information one party has from disclosure by a party with whom they may share the information. For this reason, the party with sensitive information to protect is called the disclosing party, and the party required to sign the NDA to get access to the information is known as the recipient or receiving party.

Two types of NDAs

Most of us learned early in life that the only sure way to keep a secret is to tell no one, but that’s often impractical in business. You simply can’t recruit talented employees — particularly at the executive level — without revealing the inner workings of your organization.

It’s not unusual in such recruiting situations for the company to require the candidates for the job to sign a non-mutual NDA, also known as a unilateral NDA. This is when one party is the disclosing party — in this case the business recruiting talent — and the candidates are the receiving parties. They are required to sign the NDA to advance in the recruiting process but without any assurance they will be hired.

It usually isn’t possible to properly negotiate a potential professional partnership or the merger of two businesses unless both parties reveal detailed information. These circumstances require a mutual NDA that binds both parties to confidentiality, regardless of the outcome of the negotiations.

Elements of an enforceable NDA

An effective and genuinely protective NDA requires considerable thought, but the process begins by determining who the parties involved are, and — more specifically — who will sign the agreement. It might be necessary to have NDAs with each member of a team negotiating a deal.

Carefully list all the types of information deemed confidential that the disclosing party will share with the receiving party. This task is more complicated still when writing a mutual NDA. Detail the scope of the agreement to clarify what’s confidential and what information is excluded from the NDA. For instance, the disclosing party might want to keep its current sales data confidential but have no qualms about the receiving party talking about sales from previous years.

Last, what is the term of the agreement? Make clear in the NDA how long the receiving party is bound by the confidentiality terms. Once you’ve determined all of this, use the Jotform NDA template to draw up a legally valid agreement.

While NDAs sometimes figure in salacious scandals, in reality, these are common legal instruments with a legitimate purpose in everyday business.

This article is originally published on Sep 02, 2020, and updated on Oct 04, 2022.
AUTHOR
Peter Page is a professional writer whose career began in print. He has worked with hundreds of entrepreneurs and business leaders as an editor at Entrepreneur.com and Green Entrepreneur. He is now editor for contributed content at Grit Daily News.

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