Non Disclosure Agreement: how do they work and why are they important?

What would Coca-Cola be if someone within the company had unveiled the secret of its formula?

Imagine for a moment that the best kept secret of your business is made public. How can you prevent such a thing from happening to you?

The Non-Disclosure Agreement (NDA) is a document in which the parties that sign it are bound to respect the secrecy and confidentiality of the information they are going to share, and to use it only for the purpose stipulated. This protects the information and documents that you or the people you hire have developed for the benefit of your business.

A non-disclosure agreement, or NDA, is thus a legal document that keeps the lid on sensitive information.

When should a Non Disclosure Agreement be used?

You should ask a third party to sign an NDA if you are dealing with topics which require discresion, and for which the parties involved cannot be permitted to use the information for their own purposes or disclose it to others.

This type of contract may be mutual or affect only one of the parties. For example it may be between two companies, between partners, between partners and team members, between a company and an investor, between a company and an industrial partner or between a company and its employees.

What kind of information can I protect?

The list is wide. In general terms, you can include any topic that represents a competitive advantage or “sensitive” information, for example:

  • Models or business plans (not so much the idea, but the development of the idea).
  • Financial data.
  • Data about customers.
  • Intellectual and industrial property (technologies, infrastructures, etc.).
  • Information regarding potential patents.
  • Strategic information.

It is important to note that there are circumstances in which the restriction on the use of information may become invalid, for example:

  • The receiver was already aware of this information.
  • The information is public.


What should a Confidentiality Agreement contain?

It can be structured in many ways and can include as many clauses as necessary to guarantee the privacy and effectiveness of the contract. However, certain elements must be included:

  • Parties affected and their relationship. Who will sign the agreement and share the information, as well as the type of relationship between the parties: service provider, investor, employee, partner, etc.
  • Concept and purpose. What confidential information will be shared and for what purpose.
  • Responsibilities and/or sanctions should be included in the case the agreement is breached.
  • Time during which confidentiality must be maintained.

Key considerations

To properly develop an NDA that is complete and protects your business, it is essential to consider how important the information to be shared is, as well as with whom you will share it.  Different approaches should be taken depending on the type of party.

In any case, we recommend being very cautious when sharing key information with anyone about your business. They golden rule is “do not trust anyone” and don’t share information until the other party has formally committed and signed an NDA.

Legal actions

In the event of non-compliance, sanctions are normally applied in the form of compensation in the light of damages and losses that the disclosure of the information may cause to the affected parties.

At AvaLaw we can help you resolve all your doubts on this subject and create an airtight NDA tailored to you, with the appropriate format and the necessary requirements. Feel free to get in touch with us anytime at +34 932 553 107.