In business
world, we enter into so many transactions and relationship on a daily basis that
requires disclosure of the confidential information between the parties. The option to maintain its secrecy is only by entering into a Non-disclosure agreement or the
confidentiality agreement between the parties exchanging the confidential
information. This articles explains benefits and some points to remember for
entering into such kind of agreement.
What is Non-Disclosure Agreement
A Non-disclosure
agreement is a legal agreement between two parties where one party gives access
to certain restricted information to the other party which shall not be
disclosed to the outsider.
Cases Where Execution of NDA are
Necessary
- In case of the employer and an employee
relationship when the employee is in access of the companies potential
information during the course of their job
- Receiving services from a company or
individual who may have access to some sensitive information in providing
those services
- Presentation of any invention or
business idea to a potential partner, investor, or distributor
- Execution of NDA is essential when the
investors are investing into your company and you are disclosing the
company’s secret information related to financials
- Execution of NDA is essential whenever
the two parties are joining together to accomplish a task or project
Mutual Vs Non Mutual NDA
There are 2 types of NDA:
§
Mutual
non-disclosure agreement: Agreement where each party shares the
information. This type of agreement is executed between businesses engaged in
joint venture that involves sharing proprietary information
§
Non
mutual or unilateral agreement: Agreement
where only one side party will be sharing confidential information with the
other side party.
Importance of Entering Into
NDA
1. Sometimes a non-disclosure agreement is
entered into for the purpose of conducting due diligence or to protect
confidential information. In such case in the absence of a non-disclosure
agreement, due diligence may not take place. For example, a
merger/takeover or the sale of a business.
2. Maintains the business relationship
3. It also defines the consequences for
breaching of the terms of agreement
Key Elements of Non-Disclosure
Agreements
A well-drafted non
disclosure agreement specifies what information you don’t want the other
party to disclose and what will be the consequences for breaching the agreement.
- Definition of confidential information: A clear definition of confidential
information should be form part of the agreement which defines what kind
of information to be disclosed during the course of relationship and what
not to be disclosed
- Name of Parties: In Non- disclosure agreement despite disclosing the name of
disclosing and recipient parties name, it should also provide the name of
the outsider
- Term and duration: The duration
of this agreement should also be defined for how long the information to
be kept confidential
- Legal
Obligation to Disclose: In
situation where the recipient is under the legal obligation to disclose
the information to 3 rd party. It is always better to include this clause
that the recipient will disclose such relevant information and that too by
giving a notice to the disclosing party
- Return of the confidential information: Your Non-disclosure
agreement should contain a clause that when the
confidential information typically needs to be returned or destroyed by
the Recipient Party.
- Dispute resolution: this clause
incorporation in any agreement is most important which provides the
resolution mechanism in circumstances of breach of agreement i.e.,
disclosure of the confidential information without the notice.
- Non binding clause: By inserting
this clause in the agreement you are providing an opportunity to the parties
to terminate the relationship or contract at any point.
In case you need to create a NDA to protect
your proprietary information, please contact Enterslice.
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