• By: Josh Palmer
  • August 9, 2022
Reading Time: 4 minutes
Confidentiality Agreement

A confidentiality agreement serves as a legal contract that prohibits the use or sharing of confidential information.

Confidentiality agreements prove vital when you need to solicit or disclose sensitive information. A confidentiality agreement creates a legally binding document, specifying that each involved party must abide by specific terms to share sensitive information. 

Just as with partnership agreements, it’s important to understand how a confidentiality agreement will affect and benefit your company in the long run. Conducting a board meeting with your operating committee can help key stakeholders at your company determine what information to include in the agreements. Board meeting management software can streamline your company’s board meetings, helping you achieve the best results possible in a short amount of time. 

Want to learn more about confidentiality agreements, as well as the process for creating one? Read on to discover how to create a confidentiality agreement for your company.

What is a Confidentiality Agreement?

Confidentiality agreements are legal documents that state the following:

  • The party disclosing the sensitive information and why
  • How the information will be used
  • The length of time the information must remain confidential 
  • Consequences if confidentiality is broken

Confidentiality agreements play an important role by protecting companies, subsidiary companies, their clients, and partners from legal issues and penalties. They also prevent privacy breaches and ensure that your company, including limited liability companies, comply with data protection regulations. 

These agreements are especially helpful for board directors, because they help members deal honestly and professionally in keeping confidential matters.  It helps the board of directors know what is expected of them and how they should protect sensitive information. When using confidentiality agreements for a board of directors, all members should agree to and be required to sign a confidentiality form. It not only protects members, but keeps sensitive information private.

Step-By-Step Guide for Writing a Confidentiality Agreement

Creating a confidentiality agreement starts with understanding the type of information you will share and the responsibility of each party. There are 4 key steps to consider when making a confidentiality agreement, including:

1. Outline the Scope of the Confidentiality Agreement

At the beginning of the agreement, start by giving a general summary of what the agreement is about. The beginning should state the names and responsibilities of each party, and also specify any information that needs to be kept confidential.

2. Outline Potential Exclusions

Next, define any exclusions that are not necessary to keep confidential. This can include publicly known information or information that an individual or company has already found out from a third party. Make sure to include any independent or exclusive arrangements made before entering a confidentiality agreement. This protects both parties by providing proof the independent arrangement or detail was created before forming the confidentiality.

3. Define Confidentiality Terms

You also want to outline the terms of the confidentiality agreement. For agreements pertaining to a board of directors, make sure to include the following items:

  • What information needs to remain confidential and how
  • The length of time the information needs to remain confidential
  • Any parameters needed to keep the information confidential

A good way to figure out the specific terms for the agreement includes working with other board members to create a fair and effective confidentiality plan.

4. Outline Consequences

The final item you need to include is the consequences for breaking the agreement.  An agreement should state whether the party has the right to sue for damages or if a monetary amount should be provided to the applicable party.

Advantages of a Confidentiality Agreement

There are several advantages when it comes to having a confidentiality agreement in place. Consider these 5 benefits:

  1. Ensures sensitive information will remain confidential
  2. Maintains trust between party members
  3. Encourages Corporate Social Responsibility
  4. Prevents lawsuits and legal difficulty
  5. Adverts loss of business and fraud

What Happens If You Violate a Confidentiality Agreement?

Depending on the terms and conditions stated in the agreement, there are several possible outcomes of a breach, including:
  • Facing legal action
  • Being sued for damages
  • Paying fees or penalties
  • Loss of employment or removal from the board 
It is important to keep the terms of a confidentiality agreement to prevent the issues mentioned above, as well as to establish fairness and trust between the parties. 

Confidentiality Agreement Example

Include the following components in a confidentiality agreement for your board of directors:

  • Short introduction of involved parties
  • Explanation of the confidential information
  • Applicable exclusions 
  • Duties of the receiving party
  • Term limits of the agreement
  • Compliance and supportive statements accepted by both parties
  • Applicable waivers to the agreement
  • Signatures of both parties

Including these areas can help you and your company create a strong legal document for ensuring confidentiality.

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Use Board Management Software to Store Board Documents

OnBoard’s board management portal comes fully equipped with security features to ensure your most important documents remain safe and secure. And with all documents stored in the cloud, your board members, third parties, and other applicable parties can quickly access and sign confidentiality agreements from anywhere. 

Ready to learn more? Reach out to start your free trial with OnBoard.

About The Author

Josh Palmer
Josh Palmer
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.