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Confidentiality Agreement

 Confidentiality Agreement

A Confidentiality Agreement is a legal document between two parties that prevents the

release of information, ideas, transaction details, and more to third parties. It’s common for

businesses to use these agreements during interactions with potential purchasers, clients, or

hires to ensure confidential or proprietary information isn’t released or misused to the

detriment of the owner. A confidentiality agreement may be contrasted with a waiver of

confidentiality, whereby parties involved give up guarantees of confidentiality.

The document formalises relationships between parties and guides behaviour and use of

the information. It also acts as evidence of an agreement in court upon the release of

confidential information.

A Confidentiality Agreement is also known as the following:

1. Non-disclosure agreement (NDA)

2. Confidential disclosure agreement

3. Proprietary information agreement

4. Secrecy agreement


The purpose of Confidentiality agreement is for Companies and startups. They use these

confidential documents to ensure that their ideas, strategies, and other forecasts won't be

stolen by the people they are negotiating or working with.


There are 2 parties in Confidentiality Agreement:

1. Information Provider: The party disclosing sensitive information for a specified

purpose.

2. Information Recipient: The party receiving the sensitive information.


They sign the Confidentiality Agreement to promise the Information Provider they will not

release

or misuse the information and will use it only for the specified purpose.

For example, when an employer and employee sign a Confidentiality Agreement, it’s usually

to prevent sharing the employer’s private information. In this instance, the employer is the

disclosing party, and the employee is the recipient.


When do you need a Confidentiality Agreement?

There are multiple instances when one might require to sign an NDA for your business. A

few of them include:

1. While entering into a business deal: If a person is inviting a vendor or a consultant and

want to ensure that the information that person share’s does not go out, signing an NDA is the

best option. In early-stage startups and some information sensitive companies, it is a brilliant

idea to make each employee sign a confidentiality agreemnet. This helps in ensuring that

something as simple as the strategies, projected numbers and funds do not go out of the

ecosystem.

2. While starting a new project: Let’s say you are an established business and planning to

start off a new project. This would require the involvement of both internal and external

stakeholders. It is advised to sign off an NDA so as to avoid any ambiguity or claims that

may arise from either end at any point in time.

3. While talking to investors or during mergers and acquisitions: This was a very

common practice in the past. However, modern-day investors deny to sign NDA at a very

early stage and hence, the practice is becoming obsolete now. At a point when the need arises

to look inside the papers and numbers and the communication reaches the advanced stage, a

request to sign an NDA can be made. This should carry clear justifications as to why signing


an NDA is needed. Same goes with the process of mergers and acquisitions.


How a Confidentiality Agreement Works ?

A confidentiality agreement is a standard written agreement that is used to protect the owner

of an invention or idea for a new business. It is also an important document between two

companies that are contemplating a merger or a commercial transaction that must be withheld

from public knowledge.

In the workplace, any individual who has access to sensitive information (an employee or

a contractor for a firm) is often required to sign a confidentiality agreement to guard against

the disclosure of competitive information that may harm the firm. The agreement is unilateral

(one party signs), bilateral (both sign), or multilateral if many parties will have access to

sensitive information.


Types of Confidentiality Agreements

1. Nondisclosure agreements can be reciprocal contracts, which means that all parties

involved must uphold the privacy of the information.

2. They can also be unilateral contracts, whereby only one party is required to keep the

relevant information private.

3. Mutual nondisclosure agreements are beneficial when both parties involved will be using

the restricted information, for example, in the case of inventor groups.

4. Standard unilateral NDAs, which are most frequently seen in the area of innovation, are

utilized when just one party will be conveying the restricted information. This might be to a

possible investor or a licensee.


How long does confidentiality agreement last?

There is no such specific time limit given on the duration of the Confidentiality Agreement.

Generally, this Agreement is seen to extend over a period of 2 to 5 years. The corporates may

also enter into a Non-Terminating Non Disclosure Agreement so as to protect the trade

secrets permanently.

But, as soon as the ‘confidential information’ covered under the NDA becomes public, the

Confidentiality Agreement has no effect and it comes to an end.


Is it Mandatory to Get the Agreement Notarised?

An NDA need not be notarized by a public notary but stamp duty has to be paid on the same.

Stamp duty rates can be checked in Schedule of the applicable Stamp Act as it differs from

state to state.


What happens when confidentiality agreement breaks?

The penalties over the breach of the agreement are generally specified in the agreement itself

and the breaches or infringement are accordingly dealt with. If in any agreement the penalty

is not specified, it is clearly mentioned that the person guilty of violation or breach of

contract shall be sued for such misappropriation.


In conclusion every business has its own plans, business processes, policies, plans, know-

how, trade

secrets, and such other sensitive information which it has developed with its hard work hence

it needs to keep it confidential and restrict the dissemination of the same to any third party. A


well-drafted NDA can help the business protect its sensitive information and only a good

lawyer can help you draft a proper NDA. Hence, it is advisable to hire a lawyer for the same

instead of downloading an online draft.

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