30 OCT 2018

The Difference Between an NDA and a Confidentiality Agreement

When it comes to legal paperwork, entrepreneurs have many questions that they don’t ask.

Nobody wants to look bad. For entrepreneurs in Malaysia starting to handle legal documentation though, it’s crucial to ask questions. Even if you think the question is silly, remember that legal professionals have heard it all before.

One question that pops up all the time is: What is the difference between a non-disclosure agreement and a confidentiality agreement? Let’s look at the differences and how to use them.

Non-Disclosure Agreement (NDA)

A non-disclosure agreement or NDA is a binding legal contract between two parties where one party discloses and the other party receives confidential information, which is not allowed to be shared outside of the parties named in the contract. The confidential information can be anything from actual material, knowledge, or information that is restricted from third parties to the retelling of detailed events, or any resulting agreements or actions related to the information in question.

A mutual NDA (MNDA), on the other hand, is used when both parties disclose confidential information to one another. A mutual NDA is also sometimes call a two-way NDA.

Confidentiality Agreement

A confidentiality agreement is a legal resource that details the act in which one party discloses confidential proprietary information to another party for a specific purpose. A confidentiality agreement is a piece of paper that outlines the information being shared, the parties who are privy to the information, how the information is limited by the provider, and the legal repercussions for breaking the agreement about those details.

What's the Difference?

If you read the definitions and still don’t see a difference, you’re not alone. In fact, the two legal documents are essentially the same thing. Both are comprised of legal documentation that outlines private or confidential information that will be shared between the named parties. Both of them protect that information from being shared outside the parameters described. Both are aimed at keeping the information from reaching the public or being shared widely.

More often than not, the naming of these contracts comes down to when it is being used and your geographical location.

In practice the NDA or MNDA are commonly used before two parties get into a more comprehensive contract or agreement, while they are still at exploratory stage or in the midst of discussions. A confidentiality agreement is usually used when the parties are certain of what the detailed confidential information is to be shared, and the necessary steps the receiving party will have to take to protect this confidential information.

The use of either NDA or confidentiality agreement also depends on your industry and what part of the world you are doing business in. Across the globe, people stick with the term most popular in their area. For example you might hear these legal documentation referred to by other names like a confidential disclosure agreement (CDA) or a proprietary information agreement (PIA). In Europe they prefer to call it a secrecy agreement. In the United States, there is even a regional difference: NDA is used on the east coast and the term confidentiality agreement is used across the Midwest.

In Malaysia, some legal professionals tend to use “NDA” in business transactions like acquisitions or mergers dealing with intellectual property while the word “confidentiality” is preferred for non-transactional agreements like consultation services where trade secrets change hands.

The Essentials

Regardless, the name at the top of the document is not the important part of choosing proper legal documentation. If you have critical business information that needs to stay confidential, the content of your agreement will decide how solid the clampdown on your private information is. All ironclad agreements in Malaysia should include the following:

  • clear identification of all parties involved
  • a definition of what information is confidential
  • specification of information that is excluded (if any)
  • the penalties for failing to keep that information private
  • term limits on the agreement or any aspect therein

The more detailed you can be, the better. Before signing, it’s always a good idea to get a legal professional to look it over. This ensures that the agreement has everything in place to do its job properly. It also ensures that the document will hold in the court system in Malaysia. If you can’t afford a business attorney, get yourself a subscription to legal documentation service providers where document review is included as part of the business package.

Whether you use an NDA or a CDA, taking care of your private information with proper legal documentation is crucial. With legal issues out of the way and your private business information safe and sound, you can focus on the business again instead of the details.

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