A mutual non-disclosure agreement is a contract between two parties exploring a possible business arrangement or some other possible merger that might have a mutual benefit to both parties. While the business arrangement can benefit both parties, each side must divulge certain privileged information during the negotiation process that could be used against them if the final arrangement is not agreed to.
The mutual non-disclosure agreement is utilized to ensure that any confidential information obtained from either party during the negotiations remains confidential and is not used to the benefit of either party should the negotiations falter.
Most non-disclosure agreements are unilateral agreements that prevent one party from divulging information discovered while employed or contracted by the company requesting the agreement. This frequently occurs when individuals are employed by high-tech firms that specialize in advanced information and technologies that are on the cutting edge. Employees in these types of fields have access to information that could harm the company's ability to take advantage of the information if it should fall into the hands of a competitor.
Non-disclosure agreements prevent an employee or independent contractor from divulging sensitive information obtained while in the employ of the company. For companies that deal in sensitive information or trade secrets, signing a non-disclosure agreement is always a condition of employment.
When two or more companies seek to do business together, the sharing of vital information is often a necessity in order to determine the strengths, weaknesses and potential of the various companies involved. If the potential partnership does not come to fruition, the companies are still in possession of the privileged information, and without a binding document such as a mutual non-disclosure agreement these companies could use this information to potentially harm their rival in some manner.
The mutual non-disclosure agreement will detail the information that is to remain confidential, and it will act to legally bind all parties from disclosure of the information.
Another situation where a mutual non-disclosure agreement is beneficial is when individuals forming a startup business seek financing from investors or larger businesses. The potential startup must disclose the details of the company’s plans and marketing strategies to the investor or larger business, which can leave the startup open to having their company’s plans and strategies compromised.
The investor or larger business must also disclose some information about their financial positions and strengths regarding the lending of capital to the startup, so both parties have the potential for breach of confidential information. A mutual non-disclosure agreement prevents either party from utilizing privileged information to their own advantage.
Mutual non-disclosure agreements are specialized legal instruments that are designed to protect all the parties involved in a potential business transaction where the sharing of information is necessary. It is a good habit for businesses to require, as a matter of routine, that a mutual non-disclosure agreement be signed whenever negotiations commence regarding business transactions that require disclosure of any trade secrets or inside information.
Mutual non-disclosure agreements can be customized to include any type of information be kept confidential for any length of time. As long as all the parties agree upon the stipulations set forth within the agreement, the mutual non-disclosure agreement will provide all parties with a measure of security against their own sensitive information being used against them when they least expect it.
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