Why is Non-Disclosure Agreement Required?

Posted by Enterslice India on July 20th, 2018

Non-Disclosure Agreement

Any written agreement executed between two or more parties with an intention to restrict the parties from disclosing any kind of proprietary or sensitive information is known as Non-Disclosure agreement.

Such agreements have binding clause which are applicable on either one of both the parties named in the agreement.  Thus not only restricts them from sharing such information but also from making profits as a result of such additional knowledge.

These contracts are gaining importance as in this competitive world sharing confidential information  is crucial in the process of securing investment, finding potential partners, hiring key employees or convincing potential clients etc.

What is confidential information?

Any information can be confidential information based on the business activity undertaken by the organization. For example for a manufacturing company it could be the manufacturing procedure, for a food outlet it could be secret recipes, for software development company it could be codes etc. It basically represents the information which is viable for conducting the business in a profitable manner. 

Other than above mentioned business specific information, from a business point of view following information is considered as critical and must be protected:

ü  List of clients

ü  List of sales contacts

ü  Financials of the company

ü  List of suppliers

ü  Trade Secrets

ü  intellectual Property

Various Kinds of Non-Disclosure Agreement

Based on the nature and purpose of agreement, non disclosure agreement can be of various types. On the basis of nature, it can be classified into two categories i.e. Bilateral or unilateral.

When a single party to the contract is obligated not to share or profit from confidential information described in the contract, then it can be termed as a Unilateral Confidentiality Agreement.

On the other hand, if both the parties to the contract are obligated not to share or profit from confidential information described in the contract, then it can be termed as a Bilateral Confidentiality Agreement.

On the basis of activity non disclosure agreement can be of following types;

• Inventor Confidentiality Agreement
• Employee Non-disclosure Agreement
• Interview non-disclosure agreement
• Customer Confidentiality Agreement
• Standard non-disclosure agreement

Requirement of Non- Disclosure Agreement

To understand the requirements and benefits of a non-disclosure agreement for the business its benefits to the organization are to be understood.  These benefits include the following:

1. It protects the organization’s proprietary information. Such information is shared with employees and other external parties organization deals with in general business flow.
2. It imposes a liability on employees, clients, and consultants etc not to disclose such information to any outside party or any third party outside the contract.
3. This confidentiality agreement secures the key information of the organization from being misused with an intention to harm the organization or to make extra profits.
4. If these agreements are in writing, then they have the added advantage of being legally acceptable. Many a times an oral agreement is not recognized under the eyes of law. Thus, if one has a properly executed written document, then in case of any violation of such contract the organization can claim damages by taking legal actions.
5. Many a time’s a contract’s profitability is dependent upon the confidentiality of some strategically important information or knowledge. In absence of these non-disclosure agreements, such information can be easily leaked and lead to undermining the viability of such project.

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