What is an NDA (non-disclosure agreement)?
Learn what an NDA is, how it protects your business information and when NDAs hold up in Malaysia.
February 2024 | Published by Xero
Published Wednesday 30 September 2026
Table of contents
Key takeaways
- An NDA is a contract that stops the people who sign it from sharing specific confidential information
- A one-way NDA protects one party's information, while a mutual NDA protects information flowing both ways
- Malaysian courts treat NDAs as contracts under the Contracts Act 1950, but terms that restrain someone's trade are likely to fail
- A clear, lawyer-reviewed NDA gives you remedies such as damages or an injunction if someone leaks your information
What is an NDA?
A non-disclosure agreement (NDA), also called a confidentiality agreement, is a contract that stops the people who sign it from sharing specific confidential information. It spells out exactly what's protected.
NDAs commonly protect financial information, recipes and formulas, customer data and other intellectual property. The party sharing the information is the disclosing party, and the party receiving it is the receiving party.
Think of an NDA as a locked filing cabinet with a named list of keyholders. Because everyone knows what's inside and who holds a key, both sides can talk openly.
Types of NDAs: one-way and mutual
NDAs come in two main types, depending on which way the confidential information flows.
A one-way (unilateral) NDA protects information that flows in one direction. Only the receiving party promises confidentiality, which suits sharing product plans with a contractor.
A mutual NDA protects information flowing both ways, with each party promising to protect what it receives. Mutual NDAs are common when two businesses explore a joint venture or merger.
What an NDA usually covers
Most NDAs follow a similar structure. A typical agreement includes:
- a definition of the confidential information, such as recipes or pricing models
- the permitted use, which limits what the receiving party can do with the information
- the exclusions, which list information the receiving party can use freely
- the length of time the confidentiality obligations last
- the steps for returning or destroying information when the relationship ends
- the remedies available if someone breaches the agreement
The definition clause does the most work, so make it specific. If you run a franchise, for example, name your operations manual and supplier terms clearly. Unregistered brand ideas, like a new business name you're still testing, are worth listing too, because they're yet to be protected as a registered trade mark.
Examples of when businesses use NDAs
Businesses use NDAs whenever sensitive information has to change hands. Here are the situations you're most likely to meet.
When one party asks another to sign
You may be asked to sign an NDA before a customer shares sensitive information, or ask others to sign one first. A drinks company, for example, secures an NDA before sharing its recipe with a contract manufacturer. A direct mail business might sign one before a charity shares its list of high-profile donors.
During negotiations
Two businesses may sign an NDA to see each other's financial information before inking a deal. A manufacturer and distributor, for example, might need to understand each other's financial models to weigh up the risks and returns of working together.
In operating partnerships
Some organisations need an NDA to deliver a project together. A non-profit and a tech company building a government-funded app would sign one so they can share data and insights throughout the project. If the collaboration becomes permanent, you'll also want to choose the business structure that suits it.
With consultants and contractors
Freelancers and contractors often see your pricing or client lists while they work. A one-way NDA sets clear limits on what they can do with that information once the job's done.
When buying a business
If you're buying a business, the seller will usually ask you to sign an NDA before handing over accounts and customer contracts for due diligence. M&A advisers such as Nihon M&A Center Malaysia treat a signed NDA as a required step before they release detailed information to buyers. The agreement protects the seller if the sale falls through, and it gives you the information you need to value the business.
Are NDAs enforceable in Malaysia?
Yes, NDAs are generally enforceable in Malaysia, as long as they're reasonable and clearly drafted. Two areas of law shape how courts treat them.
First, an NDA is a contract, so the Contracts Act 1950 applies. Section 28 of the Act voids agreements that restrain someone from carrying on a lawful profession, trade or business. As a result, an NDA drafted so broadly that it works like a non-compete is likely to fail, according to Forms Legal's analysis.
Second, Malaysian courts protect confidential information through the common law of breach of confidence. The Malaysian Intellectual Property Association (MIPA) notes that Malaysian law recognises no property in pure information. A claim generally needs the information to be confidential, shared in circumstances implying confidence, and used or at risk of use without permission.
A signed NDA makes your position simpler, because you can enforce a breach like any other business contract.
What happens if someone breaches an NDA?
If someone breaches an NDA, you can take them to court. Judges can award damages for your losses and grant injunctions to stop further use, as MIPA's guide to confidential information explains.
The same rules apply to you when you're the receiving party. You can usually share protected information with your lawyer or accountant, but you're typically responsible if they leak it. A good NDA spells out everyone's obligations.
To stay compliant, take extra care with how and where you record protected information. Store it in access-controlled folders, and note when you return or destroy it at the end of the agreement.
How to put an NDA in place
Putting an NDA in place takes a handful of steps. Follow them in order.
1. Decide what you need to protect
List the specific information you'll share, such as pricing or client data. The more precisely you describe it, the easier the NDA is to enforce.
2. Choose a one-way or mutual NDA
Work out whether information will flow in one direction or both. If both parties are sharing, a mutual NDA saves you drafting two separate agreements.
3. Set a reasonable scope and duration
Limit the restrictions to protecting confidential information, and leave the other party free to work in their field. Then set a duration that matches how long the information stays sensitive.
4. Work with a qualified lawyer
A poorly written NDA may be unenforceable, so ask a qualified lawyer to draft or review it. An accountant or bookkeeper can help you spot which financial information needs protecting, and you can find one in the Xero Advisor Directory.
5. Sign and store the agreement
Have authorised people from each party sign and date the NDA before any information changes hands. Keep the signed copy where you can find it quickly.
Keep your business information organised with Xero
An NDA works best when you know what information you hold and where it lives. Xero brings your bookkeeping and reports into one place, so you can share accurate figures with your accountant in real time. Explore the plans and get one month free to see how Xero fits your business.
FAQs on NDAs
Here are quick answers to other common questions about NDAs.
How long does an NDA last?
An NDA lasts for whatever period the agreement sets out. Some obligations end after a fixed term, while others continue for as long as the information stays confidential, which suits trade secrets like a recipe.
What information can't an NDA protect?
An NDA generally can't protect information that's already public or becomes public through no fault of the recipient. Standard exclusions also cover information the recipient developed independently or received from a third party.
Do employees owe confidentiality without an NDA?
Yes, employees owe an implied duty of confidentiality while they're employed, but that duty narrows once they leave, according to Forms Legal. An NDA or confidentiality clause helps protect your information after employment ends.
What's the difference between an NDA and a non-compete?
An NDA limits what someone can share, while a non-compete limits where or for whom they can work. Keeping your NDA focused on information alone makes it easier to enforce in Malaysia.
Is an NDA legally binding?
Yes, an NDA is legally binding once it meets the usual requirements for a valid contract under the Contracts Act 1950. You can sign a binding NDA without a lawyer, though a professional review lowers the risk of unenforceable terms.
Related terms
Learn more about NDAs
Handy resources
Advisor directory
You can search for experts in our advisor directory
Increase sales
Get ideas for boosting revenue
Business analytics with Xero
See future cash flow, check financial health and track metrics
Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.