How to Draft a Non-Disclosure Agreement for Business Use

A Non-Disclosure Agreement (NDA), also known as a confidentiality agreement, is a legally binding contract used to protect sensitive business information. It sets out what information must remain confidential, who can access it, and how it must be handled.

In England and Wales, NDAs are widely used in commercial transactions, employment relationships, investor discussions, joint ventures, and supply chain negotiations. Their enforceability depends heavily on precise drafting. Courts interpret confidentiality obligations strictly, meaning vague or overly broad wording can weaken protection.

This article explains how to draft an NDA for business use, including key clauses, legal structure, enforceability considerations, and common drafting risks under English contract law.

What a Non-Disclosure Agreement Does

An NDA creates contractual obligations to prevent the unauthorised use or disclosure of confidential information.

It typically:

• Defines what information is confidential
• Restricts how that information can be used
• Limits who can receive it
• Sets out remedies for breach
• Establishes duration and termination rules

NDAs are particularly important when sharing:

• Business plans and financial data
• Intellectual property and trade secrets
• Client lists and commercial strategies
• Product designs, prototypes, or technical information

In legal terms, NDAs operate alongside common law principles of breach of confidence, but the contract provides clearer and stronger protection.

Legal Basis for NDAs in England and Wales

NDAs are governed by general contract law. Their enforceability depends on:

• Offer and acceptance
• Consideration (or execution as a deed in some cases)
• Intention to create legal relations
• Certainty of terms

Courts also consider equitable principles of confidentiality, commonly linked to the Coco v A N Clark (Engineers) Ltd test:

• The information must have the necessary quality of confidence
• It must be imparted in circumstances importing an obligation of confidence
• There must be unauthorised use or disclosure

Well-drafted NDAs strengthen these principles by clearly defining obligations and remedies.

Key Decisions Before Drafting an NDA

Before drafting, several structural choices must be made:

1. One-way or mutual NDA

• One-way (unilateral): only one party discloses confidential information
• Mutual (bilateral): both parties exchange confidential information

Commercial negotiations, partnerships, and mergers typically use mutual NDAs.

2. Purpose of disclosure

The NDA should clearly state the permitted purpose, such as:

• Evaluating a potential investment
• Assessing a commercial partnership
• Considering a supply agreement
• Conducting due diligence

Restricting purpose limits misuse and strengthens enforceability.

3. Scope of confidential information

The definition must be specific enough to be enforceable but broad enough to provide protection.

It may include:

• Written and oral information
• Technical data and specifications
• Business forecasts and pricing models
• Software, designs, and prototypes

Common exclusions include:

• Information already in the public domain
• Information independently developed
• Information lawfully obtained from third parties

Core Clauses in a Business NDA

1. Definition of confidential information

This is the most important clause. It should clearly define:

• What is included
• What is excluded
• Whether oral disclosures are covered
• Whether markings such as “confidential” are required

Poor definitions are a common reason for disputes and unenforceability.

2. Obligations of the receiving party

Typical obligations include:

• Keeping information secure
• Not disclosing to third parties without consent
• Using information only for the permitted purpose
• Restricting access within the organisation

These obligations should be clearly written and not implied.

3. Permitted disclosures

Most NDAs allow disclosure to:

• Employees and directors
• Professional advisers (solicitors, accountants)
• Group companies (if relevant)

These recipients should be bound by equivalent confidentiality obligations.

4. Security and handling requirements

Modern commercial NDAs often include data protection-style provisions such as:

• Minimum security standards
• Restrictions on copying or storage
• Requirements for encryption or controlled access
• Return or destruction of information on request

Where personal data is involved, compliance with the Data Protection Act 2018 and UK GDPR becomes relevant.

5. Duration of confidentiality

The agreement must specify how long obligations last.

Common approaches:

• Fixed term (e.g. 2–5 years)
• Indefinite protection for trade secrets
• Hybrid model (fixed term plus ongoing protection for core confidential material)

Courts are more likely to enforce reasonable duration limits.

6. Exclusions and legal disclosures

NDAs should clarify that confidentiality does not apply where disclosure is required by law, including:

• Court orders
• Regulatory investigations
• Statutory reporting obligations

This prevents conflict with legal compliance duties.

7. Remedies for breach

Remedies may include:

• Injunctions to prevent further disclosure
• Damages for financial loss
• Account of profits in some cases
• Contractual indemnities (in stronger agreements)

In practice, injunctions are often the most immediate remedy for preventing harm.

8. Governing law and jurisdiction

For business use in England and Wales, the NDA should specify:

• Governing law: England and Wales
• Jurisdiction: courts of England and Wales

This avoids uncertainty in cross-border commercial relationships.

9. Return or destruction of information

On termination or request, the receiving party may be required to:

• Return all documents
• Delete digital copies
• Confirm destruction in writing

This is particularly important for digital data and cloud storage environments.

Enforceability Considerations

Courts in England and Wales assess NDAs strictly. Key enforceability issues include:

• Overly broad or vague definitions of confidential information
• Restrictions that resemble restraint of trade (particularly non-compete style clauses)
• Lack of clear consideration (unless executed as a deed)
• Unreasonable duration or scope
• Failure to identify permitted use

An NDA cannot be used to prevent lawful reporting of wrongdoing in certain circumstances, including protected disclosures under whistleblowing legislation.

Common Drafting Mistakes

1. Defining confidential information too broadly

If everything is labelled confidential, the clause may become difficult to enforce.

2. Missing purpose limitation

Without a defined purpose, information may be reused more widely than intended.

3. Weak third-party restrictions

Failing to bind advisers or subcontractors reduces protection.

4. No audit trail or record-keeping requirement

This makes proving breach more difficult.

5. No clear remedies

Without enforcement provisions, deterrence is reduced.

Practical Example of NDA Structure

A standard business NDA typically follows:

1. Parties
2. Background and purpose
3. Definition of confidential information
4. Obligations of confidentiality
5. Permitted disclosures
6. Exclusions
7. Security measures
8. Term and termination
9. Remedies
10. Governing law
11. Signature blocks

This structure aligns with common commercial drafting practice in England and Wales.

When Businesses Commonly Use NDAs

NDAs are widely used in:

• Startup fundraising and investor discussions
• Technology development and licensing
• Manufacturing and outsourcing arrangements
• Corporate mergers and acquisitions
• Employment onboarding and senior hires
• Franchise and distribution agreements

They are often used alongside intellectual property and commercial contract protections.

Key Takeaways

A Non-Disclosure Agreement is a core commercial contract used to protect sensitive business information. Effective drafting requires clear definitions of confidential information, strict obligations on use and disclosure, defined permitted purposes, reasonable duration limits, and strong enforcement provisions. In England and Wales, enforceability depends on precise wording and alignment with general contract law principles. Poorly drafted NDAs can leave commercially sensitive information unprotected, while well-structured agreements significantly reduce legal and commercial risk.