A Guide to Understanding NDAs (Non-Disclosure Agreements)

Non-Disclosure Agreements (or NDAs) are one of the most widely used and often misunderstood legal tools in business. Whether you’re pitching a new idea, onboarding a contractor, or negotiating a partnership, NDAs define the boundaries of what can be shared and what must stay confidential.

In this guide, we’ll walk you through everything you need to know about NDAs, from when to use one to what happens if you breach one…

Here’s what we’ll cover:

• What is an NDA?
• Why is an NDA used?
• When should an NDA not be used, and why?
• Types of NDAs explained
• What are the key components of a standard NDA?
• What are the pros and cons of an NDA?
• What happens if you breach an NDA?

Whether you’re a founder protecting your startup’s IP or a business leader managing sensitive partnerships, grab a coffee - because this one is worth the read.

What is an NDA?

An NDA is a legal contract that protects confidential information shared between parties. In simple terms, it’s a promise not to disclose or misuse what’s been shared.

When you sign an NDA, you’re agreeing to keep certain information private, whether that’s trade secrets, financial data, customer lists, product designs, or other sensitive details. NDAs are especially common in industries built on innovation, like technology, media, and life sciences, where information is a key competitive advantage.

A well-drafted NDA will do more than protect data - it will go a long way toward building trust by demonstrating both sides are serious about confidentiality and professional integrity.

Why is an NDA used?

In most cases, an NDA is used when one party (or sometimes both) needs to share information for a business purpose, such as pitching an idea to investors, hiring contractors, or exploring a merger, - you’re about to share the inner workings of your business, a new product design, a pitch deck, or client data, with someone outside your organisation and you want assurance that the information won’t be leaked or exploited.

An NDA ensures that everyone involved understands what information is confidential and the receiving party agrees not to disclose or use it for any purpose outside the agreed scope. This creates accountability while protecting your intellectual property, trade secrets, and competitive edge.

For businesses, NDAs are used in all kinds of scenarios, when bringing in new partners, hiring consultants, negotiating deals, or even during early investment discussions. In each case, the goal is the same: to enable open conversations while keeping sensitive information secure.

NDAs also play a subtle but powerful role in building trust. When you ask someone to sign one, it signals that you value confidentiality and expect the same in return. For startups, it shows professionalism; for established companies, it’s a standard part of doing business responsibly.

When should an NDA not be used, and why?

While NDAs are powerful tools for protecting sensitive information, they aren’t suitable for every situation. In fact, using one at the wrong time can backfire, creating friction, mistrust, or even legal complications.

You shouldn’t use an NDA when the information in question is already public, easily accessible, or not truly confidential. For example, asking someone to sign an NDA before discussing basic company information or widely known facts can seem unnecessary and overzealous. It may send the wrong message about your willingness to collaborate openly.

NDAs can also be problematic in employment settings if used to silence legitimate concerns, such as workplace conditions, whistleblowing, or discrimination claims. Courts in the US, UK, and Australia have taken a strict stance against NDAs that restrict legal rights or transparency.

Overusing NDAs can also dilute their impact. If every casual conversation or meeting requires one, people may view it as a red flag. It’s better to reserve NDAs for truly high-stakes situations involving proprietary information, intellectual property, or strategic discussions.

In essence: use NDAs to protect what matters, not to control communication. 

Types of NDAs explained

Not all NDAs are created equal. Depending on the situation, your agreement might protect one party, both parties, or even several parties. Understanding which type suits your business is key to ensuring your information stays protected without overcomplicating matters.

Unilateral NDA

A unilateral NDA is the most common type. It’s used when only one party is sharing confidential information, for example, a business pitching to investors, or a company giving a contractor access to proprietary data. The receiving party agrees not to disclose or misuse the information.

These are best for startups sharing intellectual property with potential investors or advisors, businesses outsourcing development, marketing, or design work, and employers giving employees access to confidential data.

Mutual NDA

A mutual NDA protects both sides. This type is common when two businesses share information as part of a potential partnership or joint venture. Both parties agree to maintain confidentiality and to use the information only for the agreed purpose.

These are best used for collaborations or joint ventures between companies, M&A discussions or due diligence processes, and strategic partnerships involving shared IP or data

Multilateral NDA

A multilateral NDA involves three or more parties, where at least one is sharing confidential information. Rather than signing several separate NDAs, all parties agree under a single document. While more complex to negotiate, it simplifies management and keeps everyone on the same page. These are ideally used for multi-party projects, or investment groups, situations where multiple stakeholders need access to the same information, and cross-border collaborations involving several entities.

Choosing the right NDA depends on who’s sharing information and how the relationship works. Too broad, and it becomes hard to enforce. Too narrow, and you might leave yourself exposed. A tailored NDA will strike the right balance between practicality and protection.

What are the key components of a standard NDA?

A well-drafted NDA is clear, balanced, and tailored to the relationship between the parties. It shouldn’t be overly complex, but it does need to cover the essentials. Here are the key components every effective NDA should include:

1. Identification of parties

The agreement must clearly state who is involved, the disclosing party (the one sharing the information) and the receiving party (the one agreeing to keep it confidential). 

2. Definition of “confidential information”

This section explains exactly what the NDA covers. It can include trade secrets, financial data, customer lists, business strategies, product designs, or any non-public information. A precise definition ensures everyone knows where the boundaries lie.

3. Purpose and scope

The NDA should state why the information is being shared, for example, to evaluate a partnership or discuss a potential investment, and how it can be used. This prevents the receiving party from using your information for any unrelated purpose.

4. Obligations of the receiving party

This clause outlines what the recipient must do to protect the information, such as limiting access, preventing unauthorised disclosure, and notifying you if a breach occurs. It should also make clear that the information cannot be shared with third parties without consent.

5. Duration of confidentiality

NDAs must specify how long confidentiality obligations last. This could be tied to a fixed time period (often two to five years) or continue until the information enters the public domain. The duration should be reasonable: too short undermines protection, too long may be seen as unfair.

6. Exclusions

Some information falls outside the NDA, such as data already public, independently developed information, and disclosures required by law. Listing these exclusions upfront prevents confusion later.

7. Return or destruction of information

When the agreement ends or the project concludes, the receiving party must return or destroy any confidential materials. This ensures sensitive data doesn’t linger in inboxes or servers.

8. Remedies for breach

This section spells out what happens if someone breaches the NDA, from injunctions (court orders to stop disclosure) to financial damages. Clear remedies deter breaches and make enforcement easier.

9. Governing law and jurisdiction

Every NDA should specify which country’s or state’s laws apply and where disputes will be handled. This avoids costly jurisdictional arguments later.

What are the pros and cons of an NDA?

Like most legal tools, NDAs are powerful when used properly, but problematic when overused or poorly drafted. Understanding both sides helps you decide when NDAs truly add value to your business. 

Let’s start with the pros.

Protects sensitive information

The main advantage is obvious: NDAs legally bind others to keep your confidential information private. Whether it’s product designs, client lists, or financial data, an NDA gives you a legal mechanism to prevent leaks.

Encourages trust and professionalism

Requesting an NDA shows you take confidentiality seriously. It reassures partners, investors, and employees that your business handles information responsibly, setting the tone for a professional relationship from day one.

Minimises misunderstandings

By clearly defining what can and can’t be shared, NDAs reduce confusion. Both sides know exactly where the boundaries are, helping prevent disputes before they start.

Cost-effective protection

NDAs are one of the simplest and least expensive ways to safeguard intellectual property. Compared to litigation or IP registration, they’re a low-cost way to set clear expectations and create accountability.

Up next, the cons…

Can feel overly restrictive

If an NDA is too broad or one-sided, it can create tension. Partners or employees may feel they’re being muzzled, which can make collaboration harder, especially in creative or innovation-driven industries.

Risk of misuse

Businesses could use NDAs to discourage transparency, especially around workplace issues or poor practices. This not only raises ethical concerns but can also breach employment and whistleblower protection laws.

Hard to enforce internationally

Enforcing an NDA across borders can be complicated and expensive. Jurisdictional differences mean that what’s enforceable in the US may not hold up in the UK or Australia without proper legal drafting.

Doesn’t stop bad actors entirely

An NDA deters breaches, but it doesn’t physically prevent someone from leaking information. Its strength lies in the legal consequences, which only matter if you’re prepared to enforce them.

What happens if you breach an NDA?

Breaching an NDA isn’t something that slips quietly under the radar; it can carry serious legal, financial, and professional consequences.

If you disclose or misuse confidential information covered by an NDA, the non-breaching party has the right to take legal action. This could mean a court order (injunction) to stop further disclosure, a claim for financial damages, or both. The goal is to put the harmed party back in the position they would’ve been in had the breach not occurred.

Legal and financial consequences

In the case of a breach, the non-breaching party may seek:

• Injunctions, to prevent further leaks or force the return of confidential information.
• Damages, to compensate for financial losses caused by the breach.
• Recovery of legal costs, especially if the NDA specifies that the breaching party must pay them.

While criminal charges are rare, they can arise in extreme cases, particularly when national security or government contracts are involved.

Reputational impact

Beyond the courtroom, the reputational fallout can be just as damaging. Being seen as someone who can’t be trusted with confidential information can close doors, whether you’re an employee, consultant, or business partner - reputation matters as much as legal compliance.

Employment consequences

For employees, breaching an NDA is often grounds for termination. It signals a serious breakdown of trust and can follow the breaching employee into future roles. Companies may also pursue legal action if the breach caused measurable harm, such as the loss of a client or proprietary advantage.

The takeaway

NDAs aren’t designed to intimidate; they’re meant to make everyone take confidentiality seriously. If you’re unsure about what’s covered under an NDA, don’t guess. Ask. Seeking clarity upfront is always better than facing legal action later.

Conclusion

In business, trust and confidentiality go hand in hand, and NDAs are the framework that helps protect both. A well-drafted NDA does more than safeguard trade secrets or intellectual property; it allows you to collaborate, innovate, and share future-fuelling ideas.

Understanding when and how to use an NDA is key. Use them to protect genuinely sensitive information, not as a blanket measure for every conversation. Be clear about what’s covered, ensure both sides understand their obligations, and revisit your templates regularly to keep them aligned with current laws and business practices across the US, UK, and Australia.

At Biztech Lawyers, we help founders, investors, and leadership teams draft NDAs that are practical, enforceable, and fit for the realities of modern business. Whether you’re sharing a pitch deck, partnering with another company, or expanding into new markets, our team can help you strike the right balance between protection and trust.

Need to put an NDA in place, or review the one you’re using? Get in touch with Biztech Lawyers to ensure your agreements protect what matters most: your ideas, your relationships, and your business.