Non-Disclosure Agreement (NDA): Meaning, Types, Purpose, Parts, Advantages, Disadvantages, and Examples

Explore what a Non-Disclosure Agreement (NDA) is, its types, uses, key parts, benefits, examples, duration, cost, and legal impact
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4 min
24 June 2025

A Non-Disclosure Agreement (NDA) is an important legal instrument used to protect confidential business information and maintain trust between parties. This guide outlines what an NDA is, its types, purposes, essential elements, and the information it covers. It also explains the benefits, limitations, costs, duration, and consequences of breaches, helping businesses safeguard intellectual property and ensure secure, legally compliant relationships.

What is a Non-Disclosure Agreement (NDA)?

A Non-Disclosure Agreement (NDA), also called a confidentiality agreement, is a legal contract where one party shares private business or product information with another party. In return, the second party promises not to share this information with anyone else for a set period.

NDAs help protect important business information and ideas by clearly stating what must stay private and what can be shared.

Usually, NDAs are signed at the start of a business relationship. They can cover any type of confidential information, such as test results, system details, customer lists, or sales numbers. If someone breaks the NDA and leaks information, it is considered a violation of the contract.

Check your business loan eligibility to ensure you have the financial resources to implement legal protections like NDAs in your business operations.

Types of Non-Disclosure Agreement (NDA)

NDAs come in various forms to address different confidentiality needs. Understanding the types helps in choosing the most appropriate agreement.

  • Unilateral NDA: One party discloses information, and the receiving party agrees to maintain confidentiality
  • Bilateral NDA: Both parties share confidential information and agree to protect each other’s data
  • Multilateral NDA: Three or more parties share information, ensuring mutual confidentiality
  • Employee NDA: Employers use this to safeguard business information shared with employees
  • Non-compete NDA: Restricts individuals from disclosing information to competitors
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Purpose of a Non-Disclosure Agreement

An NDA serves as a legal safeguard to protect sensitive data in a professional relationship. It ensures confidentiality and trust between parties.

  • Protects business model: Safeguards unique strategies and processes from competitors
  • Secures trade secrets: Ensures proprietary data remains confidential
  • Prevents information misuse: Limits unauthorised use of shared knowledge
  • Supports partnerships: Facilitates secure collaboration between businesses
  • Avoids legal disputes: Clearly outlines confidentiality terms to prevent misunderstandings

Parts of a Non-Disclosure Agreement

An NDA comprises several essential components to define the scope and enforce confidentiality. These parts ensure legal and practical protection.

  • Definition of confidential information: Specifies what constitutes protected information
  • Exclusions from confidentiality: Lists data not covered under the agreement
  • Obligations of parties: Defines responsibilities for safeguarding information
  • Term and termination: Specifies duration and conditions for ending the NDA
  • Intellectual property rights: Covers copyright, patent, and trademark protections

Information protected with a Non-Disclosure Agreement

NDAs cover a wide range of confidential data. Protecting this information ensures security and competitive advantage. In some cases, startups or small businesses that access funding through a micro loan may also require NDAs to safeguard sensitive information shared with lenders or partners.

  • Trade secrets: Proprietary formulas, recipes, or methods
  • Business strategies: Marketing plans, expansion initiatives, and financial projections
  • Client information: Customer lists and contact details
  • Technical data: Software code, product designs, and technical specifications
  • Legal documents: Contracts, agreements, and regulatory filings

Advantages and disadvantages of Non-Disclosure Agreements (NDAs)

NDAs have pros and cons in securing confidential information. Understanding these helps businesses make informed decisions.

Advantages

Disadvantages

Secures sensitive data

Legal complexities in enforcement

Builds trust between parties

May deter potential partnerships

Protects intellectual property

Costly to draft and manage

Provides legal recourse for breaches

Risk of unenforceable clauses

 

Example of Non-Disclosure Agreement (NDAs)

The examples below illustrate the practical use of NDAs in protecting sensitive business information. These agreements are tailored to specific situations.

  • Start-up collaboration: Two start-ups share business ideas while maintaining confidentiality
  • Employment contracts: Employees agree not to disclose company secrets
  • Joint ventures: Companies sign NDAs to safeguard mutual interests
  • Product development: Protects details of new technologies during development phases
  • Vendor agreements: Vendors commit to keeping client information confidential

Check your pre-approved business loan offer to see if you're financially positioned to support growth while maintaining confidentiality agreements.

Exclusions to NDAs

An NDA cannot cover information that is already publicly known or considered common knowledge. There may be some debate about what counts as public knowledge, but in general, if the information is already available, it cannot be kept secret under an NDA.

Also, if the information becomes public later without the fault of the recipient, or if it relates to illegal activities, it cannot be protected by an NDA.

Additionally, if the recipient already knew the information before signing the NDA, or if they could have found it through independent research or received it legally from someone else, it cannot be treated as confidential under the agreement.

What Are the Consequences of Violating a Non-disclosure Agreement?

You may face the consequences mentioned in the contract if you break a non-disclosure agreement. It is not usually considered a crime, but it can be if it involves something serious, such as stealing trade secrets.

If a person breaks a non-disclosure agreement, they may be taken to court. This can lead to a financial penalty, losing their job, or having to return an asset. They may also face legal action for violating intellectual property rights, such as copyright infringement or failing to act in the best interest of a company. A court may order them to pay financial damages and legal costs. In business environments where sensitive financial details are disclosed—such as during MSME loan applications—NDAs help protect proprietary data from misuse or exposure.

What Is the Duration of an NDA?

Each non-disclosure agreement is different, so the duration can vary. In most cases, it lasts between one year and 10 years, depending on the information that needs to stay private. Some agreements can last forever.

However, for a non-disclosure agreement to be valid in some places, it should not be too vague or unclear. If it is too general, a court may cancel it.

What Is the Cost of an NDA?

The cost of a non-disclosure agreement in India depends on how detailed and complex the agreement is. Preparing one usually costs between Rs. 15,000 and Rs. 1,25,000, which can be managed more easily with financial support such as a secured business loan.

Components of an NDA template

A legally valid NDA usually has these sections:

  • Who’s Involved: Names the parties sharing and receiving information.

  • What’s Confidential: Explains the type of information that must be kept secret (e.g., business secrets, finances, clients).

  • Purpose: States why the information is being shared.

  • What’s Not Confidential: Lists information that is not covered by the NDA.

  • Duties of the Receiver: Explains how the receiving party must keep information secret and use it only as allowed.

  • Duration: Tells how long the confidentiality rules apply.

  • Return or Disposal of Information: Describes what should happen to the information when the NDA ends.

  • Consequences of Breach: Shows what happens if the NDA is broken.

  • Governing Law: Specifies which country’s law applies.

Benefits of using an NDA template

  • Saves Time: Templates give you a head start, making it quicker to prepare NDAs, especially if you’re not familiar with legal requirements or need to handle many NDAs for your business.

  • Saves Money: Using a template can be cost-effective because you don’t have to hire a lawyer to draft each NDA from scratch.

  • Provides Peace of Mind: Templates offer a legal framework to protect your confidential information, allowing you to focus on your business knowing your information is secure.

Limitations of an NDA

While non-disclosure agreements can help protect a business, they do have some limitations. These include:

  • Time period: Most non-disclosure agreements are valid for a fixed time. Once this period ends, you may no longer be legally required to follow the agreement
  • Scope: A non-disclosure agreement only applies to the specific information mentioned in the document. It is important to clearly define what is covered and what is not before signing. Terms like financial details, trade secrets, and intellectual property should be clearly explained to avoid confusion. If the definitions are too broad, the agreement may not be legally valid
  • Jurisdiction: Even if an agreement is detailed, its legal strength depends on the laws of the state or country. Some laws limit how enforceable a non-disclosure agreement is, especially if it tries to cover illegal activities. Information that is already public is also usually not protected under a non-disclosure agreement

Conclusion

Non-disclosure agreements are indispensable for safeguarding confidential information, ensuring legal protection, and fostering trust in business relationships. By securing trade secrets, intellectual property, and sensitive business data, NDAs play a crucial role in maintaining a competitive edge. Bajaj Finance offers financial solutions like business loans to support organisations in implementing effective confidentiality measures. Before applying, it’s important to understand the applicable business loan interest rate to make informed financial decisions. Adopting NDAs protects businesses, prevents legal disputes, and enhances professional partnerships, ultimately contributing to sustainable growth in the Indian business landscape.

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Frequently asked questions

What happens if I break a Non-Disclosure Agreement?
If you break a Non-Disclosure Agreement (NDA) in India, you could face legal consequences. The party that you disclosed confidential information to can sue for damages or seek an injunction to prevent further breaches. Depending on the terms of the NDA, you may have to pay compensation for any financial loss caused by the disclosure. In severe cases, criminal charges could also apply, especially if sensitive information is misused. It is important to understand the NDA terms before signing.

Who needs a non-disclosure agreement?
A Non-Disclosure Agreement (NDA) is needed by individuals or businesses who wish to protect sensitive information. This includes entrepreneurs, startups, employees, contractors, investors, and consultants who have access to confidential data. It is especially important in industries like technology, manufacturing, healthcare, and entertainment. NDAs are used when sharing business ideas, trade secrets, customer lists, or proprietary information to prevent misuse, leaks, or competitive advantage. It ensures trust and legal protection for both parties.

How long can a Non-Disclosure Agreement last?
The duration of a Non-Disclosure Agreement (NDA) varies based on the terms agreed upon by both parties. Generally, the confidentiality obligation can last anywhere from 1 to 5 years, or even longer, depending on the nature of the information being protected. Some NDAs may also include a provision that ensures confidentiality remains in place indefinitely, especially for trade secrets. It is important to clearly define the duration in the NDA to avoid any misunderstandings or legal issues.

Can I leave the company after signing the NDA?
Yes, you can leave the company after signing an NDA. However, even after leaving, you are still bound by the confidentiality terms of the agreement. This means you cannot disclose any sensitive or proprietary information that you were privy to during your employment. Violating the NDA, even after resignation or termination, could lead to legal consequences, including compensation for damages or other penalties, depending on the agreement's terms. Always review the NDA before leaving a company.

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