Reading time: 6 minutes

A confidentiality agreement/non-disclosure agreement (NDA) is an agreement two parties enter into in circumstances where either or both parties will disclose confidential information to the other in the course of their relationship. Further, they want to keep that information confidential. NDAs are often used to protect initial conversations between two parties before entering into a more formal agreement or commercial transaction. Confidential information can be incredibly valuable, and it may be difficult to do business without sharing such information. Therefore, it is very common for businesses to enter into NDAs to protect their confidential information. This article will unpack five key benefits of using an NDA.

Five Key Benefits of Using a Non-Disclosure Agreement

1. It Provides Confidence to Share Confidential Information 

If your business or company has lots of valuable confidential information that you are reluctant to share with other parties, you may limit the relationships and business opportunities you can foster. This is because other parties may not have enough information from you to provide any sort of assistance. This may also prevent conversations from progressing. 

For example, suppose you have developed a mobile app that is a novel idea. In that case, you may be concerned about sharing your idea with a developer for fear that they will take your idea and then go commercialise it themselves. 

However, if you do not provide them with enough information about your mobile app, they will be unable to tell you if and how they can assist. Also they will not be able to tell you what their quote to assist will be. Therefore, you will find yourself at a standstill. To avoid this issue, it can be a good idea to use an NDA. An NDA will set out: 

  • what information is confidential to you; 
  • the reasons the other party can use the confidential information; 
  • how long it is confidential for; and 
  • what the consequences will be if the other party breaches their obligations under the NDA.

2. A Non-Disclosure Agreement Ensures Clarity on What Information is Confidential

An NDA enables the parties to define what constitutes ‘confidential information’. Therefore, if you are the party disclosing confidential information, you will want this definition to be as broad as possible. Additionally, it should include any commercially sensitive information of your business, whether or not such information is: 

  • in a tangible form; 
  • marked in writing as ‘confidential’; or 
  • provided orally. 

If you are the party receiving the confidential information, you may want the list to be more specific. That way you know what information shared with you will be considered confidential.

3. It Limits the Reasons a Party Can Use the Confidential Information

You may be providing confidential information to another party for a specific reason. For instance, for them to provide a quote to you to develop the software for your mobile app. However, you may be concerned that the other party will use the information for other purposes. 

For example, they could use market research you have done and sell it to someone else or share your ideas with another client. 

A benefit of using an NDA is that you can limit the reasons the receiving party can use the confidential information. This is usually referred to as the ‘purpose’. Further, the receiving party will only be able to use the confidential information for that particular purpose. The ‘purpose’ could be discussing a possible commercial transaction between the parties facilitating one party providing the other with a quote. Or additionally, for a prospective buyer to do due diligence on a business they are interested in purchasing.

4. It Helps to Set and Enforce the Consequences of Disclosure

An NDA can be useful to set out the parties expectations of how confidential information should be protected. Additionally, to set out what the consequences are of disclosing such information. Setting this out clearly in writing and having both parties on the same page will hopefully limit the likelihood of the other party sharing your confidential information. 

An NDA will often set out that if the receiving party breaches the NDA, the disclosing party is likely to suffer loss and/or damage. Further, that the disclosing party may be able to be compensated for this.

In addition, an NDA usually sets out that the disclosing party will be entitled to apply to a court to get the receiving party to immediately stop sharing the confidential information, to limit the harm caused by sharing it.

5. A Non-Disclosure Agreement Helps to Preserve Key Business Relationships

Finally, NDAs can be important to preserve key business relationships. An NDA provides peace of mind in long term business relationships where confidential information must flow between the parties. So, you know your confidential information is protected, and your business relationship is secure. By putting the expectations in writing, everyone will be on the same page. This can avoid disputes arising between the parties, and keep the relationship strong.

Key Takeaways

Businesses often use NDAs in commercial relationships when they need to disclose confidential information, and they want to make sure such information is protected from further disclosure. NDAs or confidentiality agreements can be useful because they help to manage expectations between the parties by setting out: 

  • what information is classified as confidential; 
  • what each party can do with the confidential information; 
  • how long the confidential information is to be protected for; and 
  • what the consequences of disclosing it are. 

Entering into a non-disclosure agreement may allow you to pursue business relationships, you may have otherwise been reluctant to foster, as well as give you peace of mind when it comes to existing ongoing relationships. If you need assistance with reviewing or drafting an NDA for your business, contact LegalVision’s commercial contracts lawyers on 1300 544 755 or fill out the form on this page.

Frequently Asked Questions

What is a non-disclosure agreement?

A confidentiality agreement, also known as a non-disclosure agreement (NDA) is where two parties will disclose information to the other in the course of their relationship that they want to keep confidential. NDAs provide guidelines on what information is confidential to you, how it can be used, and the consequences for breaching obligations under the NDA. 

Can an NDA limit the purpose for which the confidential information is used? 

When using an NDA, you can limit the reasons the receiving party can use any confidential information. The receiving party will only be able to use the confidential information for the particular purpose outlined in the NDA.

Can NDAs be used without being in a formal arrangement? 

Yes, NDAs are often used before entering into a formal agreement or commercial transaction to protect initial conversations between two parties. NDAs are common in these circumstances as businesses often have to share valuable information to do business. 

Webinars

Redundancies and Restructuring: Understanding Your Employer Obligations

Thursday 7 July | 11:00 - 11:45am

Online
If you plan on making a role redundant, it is crucial that you understand your employer obligations. Our free webinar will explain.
Register Now

How to Sponsor Foreign Workers For Your Tech Business

Wednesday 13 July | 11:00 - 11:45am

Online
Need web3 talent for your tech business? Consider sponsoring workers from overseas. Join our free webinar to learn more.
Register Now

Advertising 101: Social Media, Influencers and the Law

Thursday 21 July | 11:00 - 11:45am

Online
Learn how to promote your business on social media without breaking the law. Register for our free webinar today.
Register Now

Structuring for Certainty in Uncertain Times

Tuesday 26 July | 12:00 - 12:45pm

Online
Learn how to structure to weather storm and ensure you can take advantage of the “green shoots” opportunities arising on the other side of a recession.
Register Now

Playing for the Prize: How to Run Trade Promotions

Thursday 28 July | 11:00 - 11:45am

Online
Running a promotion with a prize? Your business has specific trade promotion obligations. Join our free webinar to learn more.
Register Now

Web3 Essentials: Understanding SAFT Agreements

Tuesday 2 August | 11:00 - 11:45am

Online
Learn how SAFT Agreements can help your Web3 business when raising capital. Register today for our free webinar.
Register Now

Understanding Your Annual Franchise Update Obligations

Wednesday 3 August | 11:00 - 11:45am

Online
Franchisors must meet annual reporting obligations each October. Understand your legal requirements by registering for our free webinar today.
Register Now

Legal Essentials for Product Manufacturers

Thursday 11 August | 11:00 - 11:45am

Online
As a product manufacturer, do you know your legal obligations if there is a product recall? Join our free webinar to learn more.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Lauren McKee
Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2022 Law Firm of the Year Winner 2022 Law Firm of the Year - Australasian Law Awards