What is a non-disclosure agreement (NDA)?

A non-disclosure agreement (NDA) is fundamentally a legal contract designed to protect sensitive information from being disclosed to unauthorized parties. The primary purpose of an NDA is to establish a confidential relationship between parties, ensuring that any proprietary or sensitive information shared for specific purposes, such as business discussions, remains confidential.

The correct choice highlights this critical function, emphasizing that the document actively prevents parties from sharing confidential information. This obligation helps businesses safeguard trade secrets, intellectual property, and other sensitive data that could be detrimental if revealed to competitors or the public.

In contrast, other options do not accurately represent the essence of an NDA. For instance, stating it is a contract allowing open disclosure contradicts the primary purpose, which is to restrict access. Similarly, describing an NDA as a guideline for negotiating terms mischaracterizes its function, as NDAs are legally binding agreements, not mere guidelines. Lastly, the notion that an NDA expires after one year is misleading, as these agreements can vary in duration based on the terms agreed upon by the parties involved and may last indefinitely or until a certain condition is met. Hence, the depiction of an NDA as a document preventing parties from sharing confidential information is what accurately captures its purpose and importance in contractual relationships.