A confidentiality agreement serves as a legal contract that prohibits the use or sharing of confidential information.
In today’s highly competitive business world, it’s common for companies and individuals to enter into business relationships, collaborations, and partnerships where sharing confidential information becomes necessary.
However, disclosing sensitive information can be risky, as it may be misused or shared with unauthorized parties, leading to significant financial and reputational damage. A confidentiality agreement provides a legal framework for protecting the confidential information shared between the parties.
In addition to confidentiality agreements, partnership agreements can also protect business interests in collaborative relationships. By using board management capabilities, the board of directors can help businesses navigate collaborations and partnerships effectively while protecting their interests.
What is a Confidentiality Agreement?
A confidentiality agreement, or a non-disclosure agreement (NDA), is a legal contract between two or more parties outlining the terms and conditions for how confidential information can be shared and protected.
The agreement typically defines:
- What information is considered confidential
- When you can use the information
- The obligations and restrictions on the use and disclosure of the information
A well-drafted confidentiality agreement may also include an indemnity agreement, which provides an extra layer of protection for the parties involved and ensures they’re not left financially vulnerable if a breach occurs.
In some cases, a confidentiality agreement may require a board resolution before business partners can move forward. A board resolution is a formal decision made by the board of directors outlining the specific actions the company intends to take.
Why is the Confidentiality Agreement Important?
Non-disclosure agreements play an essential role as they establish a duty of care for the parties involved. Duty of care is a legal obligation requiring individuals or organizations to take reasonable steps to prevent harm or loss to others.
Other benefits of having a confidentiality agreement include:
- Protection of confidential information: A non-disclosure agreement ensures the parties involved in the contract keep the information confidential and don’t use it for any purpose other than the intended use.
- Minimizes risks: The contract provides a framework for the parties to follow and specifies the consequences of breaching the agreement. This reduces the chance of disclosing sensitive information.
- Promotes trust and transparency: A well-drafted confidentiality agreement promotes trust and transparency between the parties involved in the contract.
- Legal enforcement: An NDA is a legally binding document. If one party breaches the agreement, the other party can take legal action to seek damages for any incurred losses.
Ultimately, a confidentiality agreement plays a critical role in protecting intellectual property, minimizing the risks associated with its disclosure, and promoting trust and transparency between parties.
How to Write a Confidentiality Agreement
When entering a business relationship, sharing sensitive or confidential information often contributes to the partnership’s success. However, disclosing private information, whether a new business idea, trade secrets, or financial information, can be risky.
Below is a step-by-step guide to help you draft a confidentiality agreement.
1. Outline the Scope of the Confidentiality Agreement
When preparing a confidentiality agreement, clearly define the scope of the contract. Make sure to include the confidential information you need to protect under the agreement, including business secrets, financial information, and customer data.
The agreement should also specify the parties involved, including the disclosing and the receiving parties.
2. Outline Potential Exclusions
Exclusions are information or circumstances not covered by the agreement and can be disclosed without breaching the confidentiality agreement.
Common exclusions may include public information, such as information on a company’s website or public records. Additionally, information publicized through no fault of the recipient, such as information disclosed in a public speech or presentation, may be excluded from the agreement.
3. Define Confidentiality Terms
The agreement should specify the permitted use of confidential information. It may state that business partners can only use private information for a specific purpose, such as evaluating a potential business transaction or partnership.
The agreement should also include provisions that prohibit the recipient from using confidential information for any purpose without the disclosing party’s consent.
4. Outline Consequences
Outline the consequences of breaching the agreement to serve as a deterrent against the unauthorized disclosure of confidential information. It may include specifying possible implications for financial damages, injunctive relief, reputation damage, and termination of the business relationship.
5. Consult With a Lawyer
A lawyer with expertise in contract law can provide valuable guidance and advice, which can ensure the agreement is legally sound and enforceable.
A confidentiality agreement must comply with specific legal requirements, such as state and federal laws, to be valid and enforceable. A lawyer can ensure the contract meets all necessary legal requirements and is compliant with the applicable laws.
What Happens if You Violate a Confidentiality Agreement?
If you violate a confidentiality agreement, you can face serious consequences, such as legal action, breach of contract, damage to reputation, and financial penalties.
It can also lead to a loss of trust and damage to your reputation, which can have long-lasting impacts on your career and business relationships. Depending on the terms of the agreement, you may be subject to financial penalties for violating the agreement.
Confidentiality Agreement Template
The LawDepot provides a free confidentiality agreement template you can customize for your business or organization. The template includes standard provisions, such as the definition of confidential information, the obligations of the parties, and the consequences of breach.
Users can customize the template by specifying the duration of the agreement, the scope of the confidential information, and any exceptions to the confidentiality obligation.
Leverage Board Meeting Software to Store and Manage Board Documents
Board meetings play a critical role in effective corporate governance. Leveraging board meeting software like OnBoard can improve board effectiveness by streamlining the document management process.
OnBoard’s board management software provides a cloud-based platform to store and manage board documents, including confidentiality agreements, board agendas, and meeting minutes. OnBoard also powers real-time collaboration and communication between board members, increasing productivity and improving decision-making.
OnBoard comes equipped with the following board management features:
- Industry-leading security, compliance, and data protection that’s certified and accredited
- Agenda Builder and Minutes Builder for simplified meeting administration
- Secure Messenger and Zoom Integration to enhance communication
- Board Assessments to empower boards to measure their performance against the organization’s goals
To learn more about choosing the right board management software for your organization, check out the Board Management Software Buyer’s Guide.
Frequently Asked Questions (FAQ)
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About The Author
- Josh Palmer serves as OnBoard's Head of Content. An experienced content creator, his previous roles have spanned numerous industries including B2C and B2B home improvement, healthcare, and software-as-a-service (SaaS). An Indianapolis native and graduate of Indiana University, Palmer currently resides in Fishers, Ind.
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