What is a non-disclosure agreement (NDA)?
A plain-English guide to non-disclosure agreements: what an NDA covers, one-way vs. mutual, how long it lasts, what is normal, and the terms worth pushing back on.
The short answer
A non-disclosure agreement (NDA) is a contract that says information shared between the parties stays private and can only be used for an agreed purpose. It defines what counts as confidential, who may see it, how long the duty lasts, and what happens if it leaks. Most NDAs are routine; the ones that cause trouble hide non-compete, IP assignment or indefinite obligations inside the confidentiality wrapper.
One-way, mutual, and which you should ask for
A one-way (unilateral) NDA protects one side's information — typical when a company shares material with a candidate, investor or supplier. A mutual NDA protects both, and is standard whenever both sides will reveal anything meaningful.
If you are being asked to sign a one-way NDA but you will also be sharing your own methods, pricing or client names, ask to make it mutual. It is a normal request and rarely refused.
What 'confidential information' should and should not include
Good NDAs define confidential information broadly but then carve out four standard exceptions: information already public, information you already had, information you receive lawfully from someone else, and information you develop independently without using theirs.
If those carve-outs are missing, you can technically breach the NDA by using knowledge you already had before the conversation started. Ask for them back in — they are considered market standard.
The purpose limitation is the real teeth
Confidentiality is only half of it. The purpose clause says what you may use the information for — evaluating a partnership, delivering a project, considering an investment. Using it for anything else is a breach even if you never told a soul.
Check the purpose is wide enough to cover what you actually plan to do, including internal discussion with your own team and advisors.
How long it lasts
Two clocks matter: how long the disclosure period runs (how long you keep sharing information) and how long the confidentiality duty survives after that. Two to five years post-termination is typical for commercial information.
Perpetual confidentiality is reasonable for genuine trade secrets and source code, but a blanket perpetual duty over everything is hard to comply with and hard to police. Ask for a fixed term with a trade-secret carve-out.
Things that do not belong in an NDA
Watch for clauses that quietly go beyond confidentiality: non-solicitation of staff or clients, non-compete restrictions, assignment of any ideas you have during discussions, or a right to injunctive relief plus liquidated damages plus your legal fees.
None of these are automatically unacceptable, but they are separate commercial decisions. Do not let them ride along unnoticed because the document is labelled 'standard NDA'.
Sample clause language
Illustrative wording, written for this guide — not copied from any real contract.
Recipient shall hold all information disclosed by Discloser in strict confidence in perpetuity, shall not engage in any business competitive with Discloser for two years, and agrees that any breach shall entitle Discloser to liquidated damages of $250,000 per incident.
A non-compete and a punitive damages figure smuggled into a confidentiality document, with no carve-outs and no end date.
Each party shall keep the other's Confidential Information confidential and use it solely for the Purpose, for a period of three years from disclosure. This obligation does not apply to information that is or becomes public through no fault of the receiving party, was lawfully known before disclosure, is received from a third party without restriction, or is independently developed.
Mutual, purpose-limited, time-bound, with the four standard carve-outs.
Red flags to look for
- No carve-outs for public, pre-existing or independently developed information.
- Perpetual confidentiality over everything, not just trade secrets.
- A non-compete or non-solicit hidden inside the NDA.
- Assignment of intellectual property you create during discussions.
- One-way obligations when both sides will be sharing information.
What to ask for
- Make it mutual if you will disclose anything at all.
- Add the four standard exclusions to the confidentiality definition.
- Set a fixed term (two to five years) with a trade-secret carve-out.
- Allow disclosure to your employees, advisors and insurers on a need-to-know basis.
- Strike non-compete and IP-assignment language, or negotiate it separately and knowingly.
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Frequently asked questions
How long does an NDA last?
Most commercial NDAs run two to five years after disclosure. Trade secrets are often protected for as long as they stay secret. If the document says nothing, the duty can be read as indefinite, which is a reason to insist on a stated term.
Can an NDA stop me reporting illegal behaviour?
No. In most jurisdictions you cannot be contractually silenced from reporting crimes, safety issues or protected disclosures to regulators. A well-drafted NDA says so explicitly; if yours does not, ask for the carve-out.
What happens if someone breaks an NDA?
The disclosing party can sue for damages and usually seeks an injunction to stop further disclosure. Proving the financial loss from a leak is hard, which is why some NDAs add liquidated damages — check whether that figure is realistic.
Do I need an NDA before pitching my idea?
For a straightforward idea, often no — many investors will not sign one. For anything involving technical detail, data, customer lists or pricing, a short mutual NDA is worth asking for.
Related guides
This guide is general educational information about how these clauses usually work. It is not legal advice, and contract law differs by jurisdiction. For a decision that matters, speak to a qualified lawyer.