NDAs are generally required when two companies enter into discussions about doing business together but want to protect their own interests and the details of any potential deal. In this case, the language of the NDA forbids all involved from releasing information regarding any business processes or plans of the other party or parties.

NDAs may also be used before discussions between a company seeking funding and potential investors. In such cases, the NDA is meant to prevent competitors from obtaining their trade secrets or business plans.

However, many investors will be reluctant to sign NDAs. Not only will this potentially prevent them from sourcing future deals with different companies, but the agreement may be very difficult to enforce and prove wrongdoing. Instead of being burdened by a legal contract even after declining an investment opportunity, most investors will simply not sign the agreement.

In all of the above, the information that is being protected may include a marketing strategy and sales plan, potential customers, a manufacturing process, or proprietary software. If an NDA is breached by one party, the other party may seek court action to prevent any further disclosures and may sue the offending party for monetary damages.