A non-disclosure agreement (NDA) is a contract that obliges the party receiving sensitive information to keep it confidential and to use it only for an agreed purpose. It is the standard first document when two parties start exploring a deal, when an adviser is brought in, or when an employee or contractor will see private information.
What it does
- Defines 'Confidential Information' — usually broadly, covering written, oral and electronic information disclosed for the purpose.
- Restricts use to the stated purpose (e.g. evaluating a transaction) and nothing else.
- Limits onward disclosure to people who need to know and are themselves bound to confidentiality.
- Sets how long the obligations last — both during discussions and for a tail period afterwards.
- Requires return or destruction of the information when the discussions end.
What it doesn't do
An NDA is not a deal. It does not oblige either side to proceed, does not grant any licence or ownership of the information, and does not make a promise about the accuracy of what's disclosed. It also won't protect information that falls into the standard carve-outs.
The standard carve-outs
- Information that is already public (or becomes public through no breach of the NDA).
- Information the recipient already lawfully held before disclosure.
- Information lawfully received from a third party without restriction.
- Information the recipient independently develops without using what was disclosed.
- Disclosure compelled by law or a court — usually with a duty to notify the other side first where lawful.
Mutual or one-way?
If both sides will share sensitive information, use a mutual NDA so the obligations run both ways. If only one side is disclosing — for example, you're sharing a data room with a potential investor or adviser — a one-way NDA is cleaner. For an individual (an employee, contractor or director), a confidentiality undertaking signed by that person is often the right instrument.
Common mistakes that gut an NDA: a purpose drawn so narrowly it doesn't cover the real discussions; a confidentiality period that's too short for the information's value; and signing an NDA that's silent on return/destruction. Each of these is addressed in the fillable templates.