In today’s competitive business environment, protecting sensitive information is paramount. A Non-Disclosure Agreement (NDA) serves as a critical legal document to safeguard confidential information shared between parties. Whether you are entering into a partnership, hiring a new employee, or collaborating with another business, an NDA ensures that your proprietary information remains secure. This article provides a comprehensive guide on how to create an NDA, detailing essential sections and clauses, as well as additional optional clauses.
Important Sections and Clauses in an NDA
1. Introduction
The introduction should clearly state the purpose of the NDA. It identifies the parties involved and provides a brief overview of the agreement’s intent to protect confidential information.
Example: “This Non-Disclosure Agreement (“Agreement”) is made and entered into by and between [Disclosing Party] and [Receiving Party] to ensure the protection and confidentiality of certain proprietary and confidential information.”
2. Definitions
This section defines key terms used throughout the NDA. Common terms include “Confidential Information,” “Disclosing Party,” “Receiving Party,” and any specific types of information that need to be protected.
Example: “Confidential Information includes all data, materials, products, technology, computer programs, specifications, manuals, business plans, software, marketing plans, financial information, and other information disclosed or submitted, orally, in writing, or by any other media.”
3. Obligations of Receiving Party
This clause outlines the obligations of the receiving party in handling and protecting the confidential information. It specifies the level of care required and the measures to be taken to ensure confidentiality.
Example: “The Receiving Party agrees to use the Confidential Information solely for the purpose set forth in this Agreement and to take all reasonable precautions to prevent any unauthorized disclosure of the Confidential Information.”
4. Exclusions from Confidential Information
This section lists circumstances under which the confidential information is not protected under the NDA. Common exclusions include information that is publicly known, already known to the receiving party, or independently developed by the receiving party.
Example: “Confidential Information does not include information that is: (a) in the public domain at the time of disclosure; (b) known to the Receiving Party at the time of disclosure; (c) independently developed by the Receiving Party without use of or reference to the Disclosing Party’s Confidential Information.”
5. Duration of Confidentiality
This clause specifies the duration for which the confidentiality obligations will remain in effect. The duration can vary depending on the nature of the information and the agreement between the parties.
Example: “The confidentiality obligations set forth in this Agreement shall remain in effect for a period of [number] years from the date of disclosure.”
Effortless Non-Disclosure Agreement Creation!
Create your Non-Disclosure Agreement with Legitt AI contract generator.
Get Started Now6. Permitted Disclosures
This section details any exceptions to the confidentiality obligations, such as disclosures required by law or court order, and specifies the conditions under which such disclosures can be made.
Example: “The Receiving Party may disclose Confidential Information if required to do so by law, provided that the Receiving Party gives the Disclosing Party prompt written notice of such requirement prior to any disclosure.”
7. Return or Destruction of Materials
This clause requires the receiving party to return or destroy any confidential materials upon termination of the agreement or upon the disclosing party’s request.
Example: “Upon termination of this Agreement, or upon request by the Disclosing Party, the Receiving Party shall promptly return or destroy all Confidential Information and any copies thereof.”
8. No License
This clause clarifies that the NDA does not grant the receiving party any rights or licenses to the confidential information beyond what is expressly stated in the agreement.
Example: “Nothing in this Agreement shall be construed as granting or conferring any rights by license or otherwise in any Confidential Information disclosed hereunder.”
9. Remedies
This section outlines the remedies available to the disclosing party in case of a breach of the NDA by the receiving party, including injunctive relief and monetary damages.
Example: “The Receiving Party acknowledges that any breach of this Agreement may cause irreparable harm to the Disclosing Party, and that the Disclosing Party shall be entitled to seek injunctive relief in addition to any other remedies available at law or in equity.”
10. Miscellaneous
This section includes various standard clauses such as governing law, dispute resolution, and entire agreement. These clauses ensure that the NDA is enforceable and covers all necessary legal bases.
Example: “This Agreement shall be governed by and construed in accordance with the laws of [State/Country]. Any disputes arising out of or in connection with this Agreement shall be resolved through binding arbitration in [Location].”
Good-to-Have Clauses
1. Non-Solicitation
This clause prevents the receiving party from soliciting or hiring the disclosing party’s employees or contractors for a specified period.
Example: “The Receiving Party agrees not to solicit or hire any employees or contractors of the Disclosing Party for a period of [number] years following the termination of this Agreement.”
2. Non-Compete
This clause restricts the receiving party from engaging in competing activities with the disclosing party for a specified period.
Example: “The Receiving Party agrees not to engage in any business activities that directly compete with the Disclosing Party’s business for a period of [number] years following the termination of this Agreement.”
Read More: How to Handle Contract Terminations Properly
3. Amendments
This clause specifies the process for making amendments to the NDA, ensuring that any changes are mutually agreed upon and documented.
Example: “This Agreement may only be amended or modified by a written agreement signed by both parties.”
4. Severability
This clause ensures that if any provision of the NDA is found to be unenforceable, the remaining provisions will still be valid and enforceable.
Example: “If any provision of this Agreement is held to be invalid or unenforceable, the remaining provisions shall remain in full force and effect.”
Read More: How to Draft a Simple Contract
5. Assignment
This clause prevents the receiving party from transferring their obligations under the NDA to another party without the disclosing party’s consent.
Example: “The Receiving Party may not assign or transfer any rights or obligations under this Agreement without the prior written consent of the Disclosing Party.”
Creating an NDA Using Legitt AI
Creating a comprehensive and legally sound NDA can be time-consuming and complex. Fortunately, Legitt AI offers powerful tools to simplify this process. By using the Legitt AI Contract Generator, you can quickly generate a customized NDA that meets your specific needs. Visit Legitt AI Contract Generator to get started.
Once your NDA is created, you can easily e-sign the document using Legitt Sign. This electronic signature platform ensures that your NDA is legally binding and securely signed by all parties. For more information, visit Legitt Sign.
Additionally, Legitt AI offers a wide range of free contract templates that can serve as a starting point for your NDA. Access these resources at Legitt Free Contract Templates.
FAQs on Non-Disclosure Agreement
What is a Non-Disclosure Agreement (NDA)?
An NDA is a legal document that establishes a confidential relationship between parties. It ensures that any confidential information shared is protected and not disclosed to unauthorized third parties. NDAs are commonly used in business to protect sensitive information such as trade secrets, proprietary data, and intellectual property.
Why is defining "Confidential Information" important in an NDA?
Defining "Confidential Information" is crucial because it specifies what information is protected under the agreement. This clarity helps prevent disputes over what constitutes confidential information and ensures both parties understand their obligations regarding the protection and use of such information.
What should be included in the "Obligations of Receiving Party" clause?
The "Obligations of Receiving Party" clause should outline how the receiving party must handle the confidential information. It typically includes provisions requiring the receiving party to use the information only for specified purposes, take reasonable precautions to prevent unauthorized disclosure, and refrain from sharing the information with third parties.
Why are exclusions from confidential information necessary in an NDA?
Exclusions from confidential information are necessary to define what information is not covered by the NDA. This includes information that is publicly known, already known to the receiving party, independently developed by the receiving party, or disclosed through legal requirements. These exclusions provide clarity and prevent unreasonable restrictions on the receiving party.
How long should the confidentiality obligations last in an NDA?
The duration of confidentiality obligations depends on the nature of the information and the agreement between the parties. It can range from a few years to indefinite periods. The duration should be specified clearly in the NDA to ensure both parties understand the length of their obligations.
What are permitted disclosures in an NDA?
Permitted disclosures are exceptions to the confidentiality obligations, allowing the receiving party to disclose confidential information under certain conditions. Common permitted disclosures include those required by law or court order. The NDA should outline the process for making such disclosures, including notifying the disclosing party in advance.
Why is the "Return or Destruction of Materials" clause important?
The "Return or Destruction of Materials" clause ensures that the receiving party returns or destroys any confidential materials upon termination of the NDA or upon the disclosing party’s request. This helps prevent unauthorized use or retention of confidential information after the agreement ends.
What does the "No License" clause signify in an NDA?
The "No License" clause clarifies that the NDA does not grant the receiving party any rights or licenses to the confidential information beyond what is explicitly stated in the agreement. This ensures that the disclosing party retains ownership of their proprietary information.
What remedies are available for breaches of an NDA?
Remedies for breaches of an NDA typically include injunctive relief (court orders to stop the breach), monetary damages, and other legal remedies. The remedies clause should outline the actions the disclosing party can take if the receiving party breaches the agreement.
What is the purpose of the "Miscellaneous" section in an NDA?
The "Miscellaneous" section includes various standard clauses that ensure the NDA is legally enforceable. These clauses cover governing law, dispute resolution, entire agreement, severability, and assignment. They provide a legal framework that supports the overall enforceability of the NDA.
How does a Non-Solicitation clause benefit the disclosing party?
A Non-Solicitation clause prevents the receiving party from soliciting or hiring the disclosing party’s employees or contractors for a specified period. This helps protect the disclosing party’s workforce and intellectual capital, preventing potential disruptions to their business operations.
What is the significance of the Non-Compete clause in an NDA?
The Non-Compete clause restricts the receiving party from engaging in activities that directly compete with the disclosing party’s business for a specified period. This protects the disclosing party’s market position and prevents the receiving party from using confidential information to gain a competitive advantage.
Why is the Amendments clause important in an NDA?
The Amendments clause specifies the process for making changes to the NDA. It ensures that any modifications are mutually agreed upon and documented in writing. This prevents unilateral changes and ensures both parties are aware of and consent to any amendments.
What does the Severability clause ensure in an NDA?
The Severability clause ensures that if any provision of the NDA is found to be invalid or unenforceable, the remaining provisions will still be valid and enforceable. This maintains the integrity of the agreement even if one part is challenged in court.
How can businesses create and manage NDAs using Legitt AI?
Businesses can create and manage NDAs efficiently using Legitt AI’s Contract Generator. This tool helps generate customized NDAs tailored to specific needs. Once created, NDAs can be e-signed using Legitt Sign, ensuring they are legally binding. Legitt AI also offers free contract templates as a starting point, accessible via their website.