A Non Disclosure Agreement (NDA) is an essential legal document for your startup. During your startup journey, you are going to be speaking to a large number of people about your idea, aspirations and what makes your business unique. While an NDA ensures your idea remains confidential, there will be circumstances where it is not appropriate nor necessary. We explain below when you should and shouldn’t ask someone to sign an NDA.
What is an NDA?
An NDA (also referred to as a Confidentiality Agreement), is a legal contract which protects your startup’s confidential information from becoming public or being used in a damaging way.
A well-drafted non disclosure agreement can specify what information you don’t want the other party to disclose and what the consequences are for breaching the agreement.
NDAs are commonly drafted to protect:
- Business plans, methods and ideas
- Intellectual property
- Trade secrets
- Financial information
- Capital raising plans
- Customer and supplier lists.
An NDA prevents a party to it from using such information for their personal gain or competing with your business. Most NDAs are drafted as ‘mutual agreements’ meaning that both parties agree not to disclose or use confidential information inappropriately. A non disclosure agreement is relevant to your business partners, investors, employees and clients.
Trusting your co-founders and business partners
A business partnership is not going to be effective without mutual trust. But do you also need an NDA between you and your business partners?
Startup co-founders are involved in the development of the business, such that it would seem inappropriate to ask them to sign an a non disclosure agreement. A shareholders’ agreement, which sets out the rights and obligations of the co-founders, may be more appropriate.
However, there are circumstances where an NDA may be suitable. For example, you might have [a great and unique business idea], but you require a founding partner with the technical skills to make it happen. If you need to speak with multiple people to find the right fit to get your business idea off the ground, an NDA may be appropriate.
Sharing sensitive information with employees and contractors
When finding the best people for your startup, you may need to disclose confidential information about your business. You should use an NDA when communicating such information to potential employees and contractors for the purpose of recruitment.
Once you have found the right person for the job, Employment or Contractor Agreements will provide your business adequate protection moving forward. These agreements will include intellectual property, confidentiality and non-compete/restraint of trade clauses which should [adequately protect your startup as it grows].