A simple nondisclosure agreement, also known as a confidentiality agreement, is a legal contract that businesses use to create confidential relationships to protect trade secrets or intellectual property, reports Nolo. Nondisclosure agreements are legally enforceable through court orders and lawsuits for damages.
Nondisclosure agreements allow businesses to use outside sources to help develop ideas without risking the loss of exclusivity of the information, according to About.com. Nondisclosure agreements contain a number of important elements, including a definition or list of the protected information and a stipulation of any information excluded from confidentiality, notes Nolo. The agreements clarify that the person or company receiving the information must keep it in confidence and limit its use to the contracted purpose. Some nondisclosure agreements stipulate the number of years that the receiver must keep the information confidential.
Nondisclosure agreements can be mutual, in which both parties exchange confidential information with each other, or one-way, in which one party confides in an employee, investor or contractor, reports Nolo. Businesses sometimes use nondisclosure agreements when they require outside cost estimates of new products, solicit funding for new business models from venture capitalists, hire proposal writers or explain operational details to potential buyers, explains About.com. Although sample nondisclosure agreements are available on the Internet, businesses should seek professional legal help before implementing them.