A non-disclosure agreement (NDA) is an agreement in which two or more parties sign a contract stipulating that at least one of the parties agrees not to reveal certain information. Typically, a party will agree to the concealment terms of an NDA because the other party is agreeing to pay it, and a business relationship is involved.

A non-disclosure agreement can be extremely important for protecting a business's secrets; it allows you to take action against the person responsible if the key information does happen to be released. This can be very helpful for recouping losses. So if an NDA is breached, then the breaching party can be sued for damages by the other party or parties to recover any losses that may have occurred as a result of the breach.

If you do not want your company secrets to get out, then you should strongly consider creating a non-disclosure agreement and making your employees or contractors sign it before they do any work for your company. This is especially true when contractors are being hired who may not possess the same level of loyalty to a company that full-time employees may have.

Here are six steps to creating a legally valid NDA / confidentiality agreement.

1. Determine whether the NDA will be mutual or non-mutual.

If an NDA is mutual, it means that both parties will be disclosing information to each other that they would both like the other party to not disclose. If an NDA is non-mutual, only one party will be providing another with information that it doesn't want to be disclosed. So, before you go any further with your NDA, figure out which type of NDA you want to create.

2. Name the parties involved.

This step is crucial because it reveals all parties who will be bound to the terms of the agreement. In many cases, only two parties are involved in non-disclosure agreements. However, this is not always the case; sometimes, third parties have a stake in the agreement or transaction. So, every party involved should be named.

3. Identify the specific information that will need to be kept confidential.

This can include formulas, recipes, client lists, strategies, ingredients, materials, trade secrets or other such information. Any type of information that you want to have protected needs to be listed in the NDA. If you neglect to list certain information you want concealed in the NDA, and if that information gets out, then you will not be able to collect damages for it. So, make sure that you include all the information you want protected.

4. Identify the terms under which the information will have to be kept confidential.

For example, you could require the party to not reveal the information for three years, for 10 years, for life, etc. You could also provide clauses about whom the party is able to discuss the information with. For example, it may be okay for you to let the party speak about the information to other members of your company, or to contractors of the company, but not to members of the general public or to the press.

5. Identify what will happen if the NDA is breached.

In this section, you should list all of the ramifications of a breach of the agreement. For example, you can say that you will be entitled to sue the signing party for any losses related to the unauthorized release of the information. You can determine a flat-dollar punishment such as $10,000 for a breach of the agreement. You can also include lawyer fees as part of the money that will be sought in damages if there is a breach of the agreement (for the legal fees that will be required to sue the person).

6. Sign the document.

This is the section in which both all parties will sign the document, thus making it legally binding. A party is not bound to the terms of the contract until they have signed it. After that point, they are bound legally. So, this last step is arguably the most important.