Understanding NDAs: When You Might Need to Share Confidential Information with Third Parties

Non-Disclosure Agreements (NDAs) are essential tools for protecting confidential information. However, one often-overlooked aspect is that there are situations where you may need to disclose sensitive information to third parties. Knowing how to navigate these disclosures is key to ensuring compliance and minimizing risks. Here’s what to watch out for when reviewing an NDA:

1.    Exceptions for Permitted Disclosures

Always verify who qualifies as a third party to whom you may disclose confidential information. These parties are often referred to as 'Representatives' under the NDA.

Typical Representatives include:

  • Affiliates (parent or subsidiary companies)
  • Directors, officers, and employees
  • Professional advisors, such as attorneys, accountants, consultants, and financial advisors assisting in a transaction

✅ Key Considerations:

  • Ensure that Representatives are not required to sign the NDA themselves or a separate agreement before receiving confidential information. Instead, you may only need to notify them of the confidentiality requirements.
  • Confirm that you are responsible for informing Representatives of their confidentiality obligations, but you should not be obligated to guarantee their compliance, as full control over Representatives may not be feasible.
  • Ensure that provisions referencing Representatives only apply to those who have actually received confidential information.

2.    Legal and Regulatory Disclosure Obligations

In certain situations, you may be legally required to disclose confidential information due to:

  • Applicable laws or government regulations
  • Court orders
  • Securities laws or stock exchange rules

📝 Key Clauses to Look For:

  • The NDA should contain a 'compelled disclosure' clause specifying the steps to take when such requests arise.
  • Ideally, the NDA should require prior notice to the disclosing party before making legally mandated disclosures. However, this requirement should only apply if permitted by law.

3.    How to Negotiate for Greater Flexibility

💡 If you anticipate needing to share confidential information with third parties, consider negotiating explicit carve-outs in the NDA.

📜 Negotiation Tips:

  • Request a clause that allows disclosure with prior written consent rather than an outright prohibition.
  • Define clear parameters around third-party disclosures to avoid unnecessary restrictions while still protecting confidentiality.

Final Takeaway

While NDAs are designed to safeguard sensitive information, recipients must carefully review clauses governing third-party disclosures. Understanding these provisions helps prevent unintended breaches while ensuring compliance and maintaining business flexibility. Before signing an NDA, assess whether it aligns with your operational and legal needs.

📖 This is the first part of our series on essential NDA considerations. Stay tuned for the next topic: **The definition of confidential information and why it matters.**

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