Types of NDAs: Everything About Non-Disclosure Agreements

Every business relationship involving sensitive information needs the proper legal shield. Not structuring the NDA correctly can leave your secrets exposed or create unnecessary burdens. A non-disclosure agreement, also known as a confidential disclosure agreement, establishes a confidential relationship to protect sensitive business information.

Whether you’re sharing trade secrets with employees, exploring joint ventures with partners, or discussing business deals with potential investors, selecting the appropriate non-disclosure agreement structure is essential to protect your competitive advantage.

Non-disclosure agreements come in three primary categories:

• Unilateral NDAs: Only one party shares confidential information.

• Bilateral NDAs: Both parties exchange confidential information.

• Multilateral NDAs: Three or more parties share confidential information.

Key Takeaways

– These legal documents serve as legally binding agreements essential for protecting private and proprietary information in business transactions. Each type suits different scenarios and provides distinct legal protection based on the information flow and the number of parties involved.

– Understanding these types helps you choose the right tool for your specific business relationship. Proprietary information agreements, closely related to NDAs, also safeguard private and confidential business details in various professional relationships.

– Not structuring the NDA correctly leaves information unprotected or imposes unnecessary obligations.

This guide helps you manage confidentiality agreements and select the best match for your needs.

The Three Primary NDA Categories

NDAs are classified by:

• How information is shared

• Number of parties involved in the confidential relationship

This classification enables businesses to quickly identify the most suitable legally binding contract for their specific situation.

Unilateral NDAs

• One party discloses confidential information.

• The receiving party must protect the information.

• These one-way agreements account for approximately 70% of all confidentiality agreements.

• Commonly used when only one party needs to disclose information.

• The receiving party is legally bound to maintain confidentiality without reciprocal obligations.

Bilateral NDAs

• Also called mutual NDAs.

• Both parties share confidential and proprietary information.

• Both parties act as disclosing and receiving parties.

• Used when both organisations need to share business secrets for potential partnerships or deals.

Multilateral NDAs

• Involve three or more parties.

• Used when multiple organisations collaborate on joint ventures, consortia, or large-scale projects.

• Avoids managing many bilateral agreements between each pair of parties.

Industry data shows:

• Unilateral NDAs dominate employment and vendor relationships.

• Bilateral NDAs are standard in mergers and acquisitions.

• Multilateral NDAs are growing in technology consortia and multi-company research.

Unilateral NDAs

A unilateral NDA creates a confidential relationship where only one party shares sensitive information.

The receiving party:

• Must safeguard the disclosing party’s confidential information.

• Must not reveal trade secrets or sensitive company data.

This simple structure makes unilateral NDAs the most frequently used type of confidentiality agreement, especially in employment contracts and vendor relationships.

When to Use Unilateral NDAs

Common scenarios include:

• Employer-Employee: Protects confidential business information, customer lists, and trade secrets. Obligations often extend beyond employment.

• Company-Contractor: Secures confidential data shared with external consultants or advisers without requiring reciprocal disclosure.

• Inventor-Evaluator: Protects patents, inventions, and intellectual property during evaluations.

• Seller-Buyer: Prevents unauthorised disclosure during sales, licensing, or acquisition talks.

Advantages:

• Simpler to draft, negotiate, and enforce.

• Clear confidentiality obligations flow in one direction.

Note: Some receiving parties may resist unilateral NDAs, preferring mutual protection when they also share information.

Bilateral NDAs

Bilateral NDAs establish a confidential relationship in which both parties exchange sensitive information and agree to reciprocal confidentiality obligations.

Each party:

• Acts as both the disclosing and receiving party.

• Commits to protecting others’ confidential information.

These agreements include mirror provisions applying confidentiality clauses equally.

Important: Bilateral NDAs cannot prevent protected disclosures of illegal activities or regulatory violations.

Common Use Cases for Bilateral NDAs

• Joint Ventures and Partnerships: Share business strategies, operational plans, and confidential information.

• Mergers and Acquisitions: Protect financial info, customer lists, trade secrets during due diligence.

• Technology Collaborations: Share intellectual property, source code, and technical specifications.

• Supply Chain Partnerships: Share production processes, quality standards, and proprietary information.

Negotiation is more complex than unilateral NDAs but fosters open communication and trust by ensuring balanced protection.

Multilateral NDAs: Complex Multi-Party Agreements

Multilateral NDAs involve three or more parties sharing confidential information simultaneously.

Benefits:

• One agreement covers all participants.

• Avoids multiple bilateral agreements.

When to Use Multilateral NDAs

• Consortium Partnerships: Multiple companies collaborate on large projects, sharing proprietary information.

• Multi-Company Research: Universities, government, and companies share research data and findings.

• Complex Deals: Large real estate, infrastructure, or multi-party licensing agreements.

Managing Information Flow

• Agreements specify who is authorised to access which confidential information.

• Some allow universal access, while others restrict sharing to specific parties.

Challenges

• Complexity grows with more parties.

• Enforcement and breach remediation are more difficult.

• Exiting parties require careful management of ongoing confidentiality.

Specialised NDA Types by Industry and Purpose

NDAs are often tailored with clauses relevant to specific industries or use cases.

Examples:

• Employee NDAs: Protect customer lists, business strategies, and include provisions for social media and post-employment obligations.

• Technology NDAs: Cover source code, algorithms, and development methodologies.

• Investment NDAs: Strike a balance between confidentiality and investor evaluation needs.

• Healthcare NDAs: Addressing Privacy Laws and Research Protocols.

• Manufacturing NDAs: Protecting Production Processes and Supplier Relationships.

How to Choose the Right NDA Type

Follow these steps:

1. Assess Information Flow: One-way disclosure → unilateral NDA; mutual disclosure → bilateral NDA.

2. Count Parties: Two parties → unilateral or bilateral; three or more → consider multilateral.

3. Evaluate the Relationship: Employment is typically a unilateral arrangement, while partnerships are often bilateral.

4. Analyse Sensitivity: Highly sensitive info may need stricter protection.

Matching NDA Types to Scenarios

Scenario	NDA Type	Key Points
Employee onboarding	Unilateral	Standard confidentiality clauses
Vendor/contractor engagement	Unilateral	Protect customer data and operations
Joint venture exploration	Bilateral	Both parties share business plans
M&A due diligence	Bilateral	Extensive mutual information sharing
Multi-company research	Multilateral	Efficient for complex collaborations
Investment discussions	Unilateral or None	Many VCs refuse early NDAs

Common Mistakes to Avoid

• Using bilateral NDAs when only one party discloses information.

• Choosing multilateral NDAs for small groups.

• Ignoring negotiation dynamics and industry standards.

When to Consult Legal Counsel

Seek legal advice for:

• Complex business relationships.

• International transactions.

• High-value intellectual property.

• Multilateral agreements with regulatory requirements.

Key Elements Across All NDA Types

All NDAs should include:

• Defining Confidential Information: Clear, specific categories and exclusions.

• Duration and Scope: Time period of confidentiality obligations.

• Consequences of Breach: Remedies including injunctive relief and damages.

• Information Handling: Security requirements for storage and transmission.

• Return and Destruction: Procedures for confidential information at relationship end.

FAQs

What is the most common NDA type?
Unilateral NDAs, which account for approximately 70% of agreements, are primarily used in employment and vendor relationships.

Can a unilateral NDA become bilateral?
Yes, but it requires drafting a new agreement with mutual obligations.

How many parties can a multilateral NDA include?
Legally unlimited, but practically 3-6 parties for manageability.