NDA (non-disclosure agreement)
Learn what an NDA means, what it includes, the main types, and what signing one involves.
February 2024 | Published by Xero
Published Friday 2 October 2026
Table of contents
Key takeaways
- An NDA is a legally binding contract that stops signatories sharing confidential information outside the agreement
- It sets out what information is protected, how it can be used, who it can be shared with, and how long the obligation lasts
- The main types are one-way, mutual, and multilateral, depending on who shares information with whom
- Working with a qualified lawyer helps make sure the agreement is clear and enforceable
What an NDA means
A non-disclosure agreement (NDA) is a contract that prevents the people who sign it from sharing confidential information with anyone outside the agreement. It's sometimes called a confidentiality agreement.
An NDA legally protects financial information, intellectual property, and data by binding everyone who signs it to keep that information private. It also names exactly what's covered, so signatories can have open conversations without worrying about where the information ends up. That might be a financial statement shared with an investor, or intellectual property such as a formula, product design, customer list, or royalty arrangement.
Most NDAs cover the same core elements, whatever the industry or the size of the deal. These are the parts you'll usually find in one.
What an NDA typically includes
A well-drafted NDA removes ambiguity by spelling out who is bound and what they can do with the information. Look for the following elements:
- The parties bound by the agreement
- A clear definition of what counts as confidential information
- How the recipient may use the information, and what stays off limits
- How long the confidentiality obligation lasts
- The consequences if someone breaches the agreement
NDAs aren't all structured the same way. The right type depends on who's sharing information with whom.
Types of NDA
There are three common structures, and the difference comes down to how many parties are sharing confidential information:
- One-way (unilateral): one party shares information and the other agrees to protect it.
- Mutual: both parties share confidential information and both agree to protect it.
- Multilateral: three or more parties share information under a single agreement.
NDAs come up in many everyday business situations. These examples show when you might sign or request one.
Examples of when businesses use an NDA
One common situation is when one party asks another to sign an NDA before sensitive information changes hands. A drinks company that has to share its recipe with a contract manufacturer would secure an NDA first to protect its intellectual property. In the same way, a direct mail business may need to sign one before a charity shares its mailing list of high-profile donors.
NDAs also appear in negotiations. Before signing a deal, two businesses may use an NDA so they can review each other's financial information. A manufacturer and distributor might compare financial models, including each side's balance sheet, to weigh the risks and returns of a partnership. The same applies during due diligence, such as when someone is buying a business and needs to see the books.
They're just as useful in operating partnerships. A non-profit might partner with a tech company to build a government-funded app, then sign an NDA so both sides can exchange data and insights throughout the project.
Signing an NDA commits you to real obligations. Here's what that means once you've put your name to one.
What signing an NDA means for your business
By entering an NDA, you agree that you won't share certain information with anyone outside the agreement. There can be legal repercussions for breaking it, so make sure you understand what you're signing up to before you commit.
You can usually share the protected information with your lawyer, accountant, or another agent. But you're typically responsible if that agent leaks it, so the NDA needs to make everyone's obligations clear. To meet those obligations, be careful about how and where you record protected information, and keep it in secure systems such as cloud security tools.
Because an NDA has to identify precisely what's protected, it's worth working with a qualified lawyer. A poorly written agreement may not hold up, and an enforceable one gives everyone confidence to share.
Protecting sensitive information is easier when your own financial records are accurate and in one place.
Keep your business finances organised with Xero
An NDA protects the details you share, and keeping your own records accurate makes it easier to know exactly what you're protecting. Xero brings your invoicing, bank reconciliation, and reporting together in one place, so your numbers stay clear and your data stays secure. When you're ready to try it, you can get one month free.
Still have questions about how NDAs work? These short answers cover the points people ask about most.
FAQs on NDAs
Here are quick answers to some of the most common questions about non-disclosure agreements.
What does NDA stand for?
NDA stands for non-disclosure agreement. You may also see it called a confidentiality agreement, which means the same thing.
Is an NDA legally binding?
Yes, an NDA is a legally binding contract once it's properly drafted and signed. If a party breaks it, the other side can take legal action.
How long does an NDA last?
An NDA lasts for the period set out in the agreement, which might be a fixed number of years or, for some information, indefinitely. There's no single standard length.
What happens if someone breaks an NDA?
The affected party can usually pursue legal remedies, such as claiming damages or asking a court to stop further disclosure. The exact options depend on the terms of the agreement.
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.