NDA (non-disclosure agreement)
Learn what a non-disclosure agreement (NDA) is, the types, what it protects, and what happens if one is broken.
February 2024 | Published by Xero
Published Monday 31 August 2026
Table of contents
Key takeaways
- An NDA is a legal contract that keeps shared information private between the people or businesses who sign it
- An NDA can be one-way, mutual, or cover several parties, depending on who is sharing information
- A clear NDA sets out what counts as confidential, how it can be used, how long it lasts, and what happens if someone breaks it
- Breaking an NDA can lead to a lawsuit and financial damages, so many businesses ask a lawyer to review one before signing
What is a non-disclosure agreement (NDA)?
A non-disclosure agreement (NDA) is a legal contract where one or more parties agree to keep certain information private. It sets out what can be shared, who it can be shared with, and how it must be protected.
An NDA is also called a confidentiality agreement. Businesses use one whenever they need to share sensitive details with another party but still want that information kept secret.
How does an NDA work?
An NDA works by creating a legal obligation between the party sharing the information (the discloser) and the party receiving it (the recipient). Once both sides sign, the recipient is bound by the terms of the contract.
Under a typical NDA, the recipient agrees to:
- Keep the shared information confidential
- Use the information only for the agreed purpose
- Avoid passing the information to anyone else without permission
Types of NDAs
NDAs are grouped by how many parties share confidential information. Knowing the difference helps you pick the right one for the situation.
- Unilateral NDA: a one-way agreement where only one party shares confidential information and the other agrees to protect it
- Mutual NDA: a two-way agreement, sometimes called a bilateral NDA, where both parties share information and both agree to protect it
- Multilateral NDA: an agreement between three or more parties, where at least one party shares information with the others
What information does an NDA protect?
An NDA protects the confidential information the parties define in the contract. For a small business, this often includes commercially sensitive details that would cause harm if a competitor saw them.
- Trade secrets, such as formulas, methods, or processes
- Financial information, including budgets and financial statements
- Customer and supplier lists
- Intellectual property, such as designs, patents, and royalty arrangements
- Marketing plans and internal operating information
What an NDA does not cover
An NDA has limits, and some information sits outside its protection even after both sides sign. Most agreements make these exceptions clear so each party knows where the obligation ends.
- Information that is already public knowledge
- Information the recipient already knew before signing
- Information the recipient develops independently or lawfully obtains from a third party
- Disclosures a court or law requires, or disclosures that reveal illegal activity
Key parts of an NDA
A well-written NDA leaves little room for confusion about what is protected and for how long. Most agreements share a common set of clauses.
- The parties: who is sharing information and who is receiving it
- Definition of confidential information: what the agreement actually protects
- Permitted use: how the recipient can use the information
- Exclusions: what falls outside the agreement
- Duration: how long the obligation lasts
- Consequences of breach: what happens if someone breaks the terms
When businesses use an NDA
You use an NDA any time you need to share confidential information but want it kept private. For a small business, a few situations come up often.
- Hiring employees or contractors who will handle sensitive information
- Opening funding talks with investors who need to review your finances
- Buying or selling a business, where each side reviews confidential records during due diligence
- Working with suppliers or operating partners on a shared project
What signing an NDA means for your business
Signing an NDA means you take on a legal duty to protect the information covered by the agreement. If you share it with an adviser, such as your lawyer or accountant, you usually stay responsible for keeping it confidential.
Careful record-keeping helps you meet that duty and avoid accidental leaks. Store sensitive documents where access is controlled, and look at how you keep those records secure. For anything with high stakes, it is worth asking a qualified lawyer to check the agreement before you sign.
What happens if an NDA is breached?
Breaking an NDA is treated as a breach of contract, which the disclosing party can take to court. The consequences depend on the terms of the agreement and on local law.
- A lawsuit against the party that broke the agreement
- Financial damages to cover the loss caused by the breach
- A court injunction ordering the party to stop sharing the information
- Liability for legal costs and lasting harm to the business relationship
Where the breach involves stealing a trade secret, it may also be treated as a crime.
Keep your confidential business records secure with Xero
The financial information an NDA protects, from budgets to customer details, needs a safe and organised home. Xero keeps your accounting records in one secure place, so you can control who sees them and stay on top of what you share. You can get one month free when you start with Xero.
FAQs on NDAs
Here are quick answers to some common questions about non-disclosure agreements.
Is an NDA legally binding?
Yes, an NDA is a legally binding contract once both parties sign it. Whether a court will enforce it depends on how the agreement is written and on the law where you operate.
How long does an NDA last?
An NDA lasts for the period set out in its duration clause, which might be a fixed number of years or run for as long as the information stays confidential. Some agreements have no end date.
Can you cancel an NDA once it is signed?
You can usually end an NDA early if all parties agree in writing. Otherwise it stays in force until it expires or the information is no longer confidential.
Do you need a lawyer to write an NDA?
You are not required to use a lawyer, and many businesses start from a template. For high-value or complex information, legal advice helps make sure the agreement holds up.
What is the difference between an NDA and a confidentiality agreement?
There is no real difference; the two terms describe the same kind of contract. Some industries simply prefer one label over the other.
Related terms
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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.