When to Use a Non-Disclosure Agreement (NDA)?

Last Updated at: Nov 23, 2020
When to use a Non-Disclosure Agreement (NDA)?
In June 2020, the resolution professional of Jet Airways shortlisted 4 potential bidders to acquire the bankrupt carrier. The bidders signed a non-disclosure agreement (NDA) with the resolution professional. The signing of NDA would allow the shortlisted entities to do due diligence of the airline’s assets by getting access to the company’s data about its assets, vendors, employees and liabilities. After which, they will submit a bid proposal to acquire a stake in the airline as per insolvency proceedings.


Many situations in the business will require one to share private and confidential information with another person or company. To make sure that the other person or company respects the confidentiality, a non-disclosure agreement (NDA) is used.

NDA can be signed anytime when one wants to share something valuable about the business and ensure that the other party does not use it without approval, or outright steal it.

Five situations where Non-disclosure agreement takes place-

Discussion related to the sale or licensing of a product or technology

If the sale or licensing of a product or technology is taking place, then the one who owns it want to prevent the prospective purchaser from using his/her information as the influence in other negotiations.

While there is nothing which is stopping them from telling that they have a lower offer somewhere else. But the true owner does not want them to disclose the actual data or even the company name, especially to a contender. The owner and the purchaser might exchange a lot of company information and financial prospects during the discussions. So, this is one of the reasons for protecting the company’s sensitive information with an NDA.

Get Your Legal Documents Prepared by Experts

Access to confidential and proprietary information by employees

It is not easy to build a huge business. It takes so much persistent hard work and effort. So, it is always better to protect things like supplier and manufacturing agreements, proprietary processes, client lists, etc. Ensure that all the employees are barred from walking out and opening up a rival business using your treasured information.

Making an offer to a budding partner or investor

In some instances, adding a new partner or an investor can expand the business to give the path for success. During these negotiations, there are high chances of revealing a lot of sensitive information about the company to the other persons such as business financials, personal information, etc. During these negotiations with multiple potential partners or investors, one needs to make sure the information shared is protected.

Startups which are trying to raise funds from the venture capital investors need to be more careful when it comes to nondisclosure agreements. Because most of the venture capitals refuse to sign the NDA.

Getting services done by a company that has access to sensitive information

There are some companies which run paid campaigns for brands through which they collect a lot of data. Brands are spending so much money every month on these campaigns. This gives the company access to all the valuable information such as email addresses, leads, customers, pixel data, etc. of the brand.

In many cases, most of the brands fail to make an NDA which gives chances for the companies to misuse the data. So, while getting into an agreement with the companies related to data, brands should make sure that they make an NDA avoid future complications.

Sharing sensitive information of the business with a prospective buyer

Whenever two parties are negotiating about the sale of the company or acquisitions, the seller will surely reveal all relevant information related to the company to the buyer. As they are going to buy the company in the future it is very common to reveal all the sensitive information related to the company.

But the problem arises when the negotiations are not fruitful and the other party denies to acquire the company. At this point, the party will have sensitive information related to the company. There are chances for them misusing the information. So, while sharing this sensitive information, the party shall just make an NDA avoid problems in the future.

Advantages of Non-Disclosure Agreement

A Non-Disclosure Agreement (NDA), is also known as a confidentiality agreement. One can use it to shield sensitive information from exploitation or otherwise disclosure. For both parties to perform their duties per their abilities, disclosure can be difficult to avoid disclosure of confidential information. Everyone knows that that one must sign an NDA before disclosing the confidential data.

There are several advantages and benefits of using an NDA:

  1. The advantage of the NDA is the security of one’s details.  You should decide with an NDA agreement on what information you want to reveal to others; what responsibilities each of the parties has concerning sensitive information; and how the parties handle the information when after terminating the NDA.
  2. A carefully crafted NDA outlines the effects of violations of the NDA, potentially involving severe monetary sanctions. A party that has violated the NDA may also face a court order. This will prevent it from further divulging any NDA-protected confidential information.
  3. NDA guarantees parties that information will maintain confidentiality. It also confirms that it may include survival clauses for some time after the party’s relation expires. This will require the party not to disclose confidential information.

Other Notable Benefit of NDA

An NDA agreement may allow the parties to identify what is “confidential information”. This is to explain what the parties consider confidential. Also what they don’t want to reveal to the other parties in their relationship. It can contain everything from ideas for patents, test results, employee information, passwords, etc. The drafters establishing the classified information can save a great deal of time during various times. Like in the event of a dispute or a lawsuit, the judge checks whether the parties have listed or defined the disclosed information in the NDA.

When defining what is confidential, NDA drafters can be as specific as they desire by including a comprehensive set of specific things. Others would like a more detailed, non-exhaustive list that can include all the information shared in the sense of dealing with the agreement ‘s objectives. The drafters can also include exemptions from restrictions on disclosure such as information widely accessible to the public; data collected by a third party. Here the drafters need not constrain it with confidentiality clauses; insignificant information; relevant data generated solely for the recipient; data revealed without the recipient’s fault etc. In NDAs, such exceptions are common.