Meaning and importance of a non-disclosure agreement


Today, non-disclosure agreements exist in almost every industry. Companies utilize NDAs for a variety of reasons, ranging from safeguarding sensitive information to settling potentially furious former employees. NDAs are, at their essence, a technique for limiting the amount of information that leaves an organization.

Through this article let us try to understand why we need a non-disclosure agreement for employees, or clients and what should be the key elements in the non-disclosure agreement format.

What is a non-disclosure agreement (NDA) ?

Non-disclosure agreements are legal agreements that define a “confidential relationship” between someone who has access to sensitive information and someone who does not. A confidential relationship means that one or both parties are obligated to keep the information private.

Confidentiality agreements, confidentiality disclosure agreements and non-disclosure contracts are all terms used to describe non-disclosure agreements. You might encounter one at the outset of a business relationship or during a large financial transaction. To preserve the organization’s sensitive data, an employer may draft a non-disclosure agreement for employees. If writing an NDA on your own seems onerous or confusing, try enlisting the assistance of legal specialists on the CoffeeMug team. These specialists are skilled at organizing and collaborating, so all you have to do is connect them via our CoffeeMug platform.

What is the purpose of a non-disclosure agreement?

An NDA serves two purposes: confidentiality and protection. A confidentiality agreement can protect information ranging from product specifications to client lists. An NDA can protect business models, test results and even embargoed press releases or product reviews.

An NDA establishes the legal basis for preventing the theft or disclosure of ideas and information to competitors or third parties. Breaching an NDA can result in a variety of legal consequences, including litigation, financial penalties and even criminal accusations. NDAs provide a layer of security for your company, ensuring that even unintentional breaches are covered and will be handling sensitive data, to sign a non-disclosure agreement (NDA) promising not to reveal such facts at any time.

An NDA serves three critical functions:

  1. Identifying protected information. NDAs classify information by drawing a line between what is secret and what can be revealed. This permits parties to work freely within the confidentiality agreement’s limitations.
  2. Signing an NDA provides a legal responsibility to keep sensitive material confidential. Any disclosure of the information is a contract violation.
  3. An NDA might shield an innovator as they develop their new product or concept because public disclosure of a pending invention can often void patent rights.

Using real-world examples to understand the importance of an NDA

Corporations adopt non-disclosure agreement for employees and business partners since there will be confidential communications taking place during new product development. In the event, if that information about a potential new product leaks to the public, the company’s competitive advantage will be jeopardized.

Take for example the case of Apple’s collaboration with Hyundai:

We are all aware that Apple is one of the most secretive companies in the world. Until it is ready to share its technologies and future products, Apple maintains them under wraps. It does this to both dissuade competitors from obtaining trade secrets and copying its products and to build hype around the product as a promotional strategy.

However, Hyundai had once announced in a press release that it was in negotiations with Apple about cars, as per CNBC reports. This sparked speculation whether Apple was considering developing a car-related product. Hyundai then issued a statement clarifying that no reference to Apple had been made. 

Apple ensures that all its clients and partners sign an NDA that maintains its confidentiality. Also, its partners are not allowed to use the company’s business name “Apple” in any way.

Businesses like Coca-Cola and KFC, who rely on trade secrets for existence, forced those employees who were aware of their recipes to sign NDAs or equivalent contracts.

The entertainment business is another such sector that makes considerable use of NDAs. NDAs are a legal tool that film studios routinely employ to protect their copyright and prevent information about new films from leaking. It’s logical that NDAs use has expanded in this sector, given the prevalence of internet file-sharing and the sensitivity surrounding plot spoilers.

Why do you need a non-disclosure agreement for employees?

In the highly competitive field of technology, there’s also a genuine possibility that outstanding employees will quit to establish their own business.

Even if it’s only in their heads, every time an employee leaves, they are surely taking knowledge with them. You run the danger of losing confidential information if you don’t sign an NDA.

The NDA imposes a legal obligation on the employee to keep the company’s classified data secret and not misuse it for a specified length of time, which may extend even after they leave your company.

Important terms and conditions in a non-disclosure agreement format:

A non-disclosure agreement format must include the following essential components:

  • Step 1: Specify the scope

What information is regarded as private? NDAs sometimes include a “catch-all” language that ensures that any information that a “reasonable person” would consider should be kept private or not.

  • Step 2: Specify each party’s responsibilities

What should the party receiving the information do to ensure that it remains private? What safeguards will they put in place to prevent unauthorized access?

  • Step 3: Make a list of possible exclusions

When is it appropriate for a party to divulge confidential details? What data has already been excluded from the concept of confidential data? Situations where disclosure may be required include legal actions and the employment of subcontractors.

  • Step 4: Term of the contract

The disclosing parties may want the arrangement to last indefinitely but the receiving parties frequently want it to be limited in time. When determining the term, both parties’ interests must be addressed; there should be no doubt on the duration of confidentiality.

  • Step 5: Outline the ramifications

Will there be a termination of employment or a commercial relationship as a result of a breach? Is it possible for the aggrieved party to sue in court for an injunction or even damages?


Nondisclosure agreements are cost effective, easy-to-create legal documents that encrypt and protect confidential information. They are used by organizations and individuals to secure their businesses and personal information as well as they enable collaboration without fear of confidential information being compromised.

It’s critical to be as precise as possible when establishing an NDA so that all parties understand what can and cannot be disclosed, as well as the potential ramifications of information leaks.

Unfortunately, many entrepreneurs will put their ideas into action before ever considering signing a non-disclosure agreement. Don’t panic; our CoffeeMug staff can put you in touch with legal professionals who can help you draft an NDA before it’s too late. 


How long does a non-disclosure agreement (NDA) last?

A. Each NDA will last a varied amount of time due to its uniqueness. The period of an NDA typically ranges from one year to ten years, although it may be indefinite depending on the type of information that needs to remain hidden.

Q. Is it necessary to register an NDA?

A. NDA can be registered under the Registration Act of 1908 at the sub-office registrar’s in your district or city.

Q. What is a non-disclosure agreement (NDA) template?

A. An NDA template is a non-disclosure agreement template that a person or corporation can use to build their own NDA. It will include broad legal information as well as blanks to fill in so that multiple parties can design a tailored NDA that is specific to their relationship.

Q. Where can I get an NDA template?

A. NDA templates can easily be accessed online using a search engine. Many websites provide NDA templates for download.

Q. What are the drawbacks of an NDA?

A. Following are a few drawbacks a non-disclosure agreement: 

  • NDA agreements create a foundation of distrust in a partnership, which is a significant downside.
  • Employee NDAs can also deter top talent from joining your company because they know they will be restricted in discussing their work in the future.
  • A breach of an NDA can result in a lawsuit, which can be a hassle for everyone involved.

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