What is a Non-Disclosure Agreement (NDA)?
A Non-Disclosure Agreement or Confidentiality Agreement, is a legally binding contract that allows you to share your ideas in confidence.
Do you need a Non-Disclosure Agreement?
When you start your business, you will meet with a lot of people like banks, investors, accountants, advisors, manufacturers, marketing agencies and so on. You will have to disclose certain information. Don’t just assume the discussions are automatically confidential! Draft a NDA and ask them to sign it before you disclose any confidential information.
What should an NDA cover?
First, decide what the agreement will cover and in what instances the information can be disclosed. Be realistic! If you meet with investors, they will most likely discuss the investment opportunity with their own advisors before making any decisions. Ensure the NDA extends to your investors’ advisors!
You also need to decide how long the confidentiality will last. It is unlikely anyone will sign a NDA that lasts forever, but 3-5 years should be fine.
Types of NDA
There are 2 types of NDAs, one way or two way, depending if you are the only one disclosing the information (one way- eg meeting an investor) or both parties disclosing (two way – eg you and your business partner).
And yes, if you work with a business partner, I strongly advise you to have a two way NDA between the two of you.
Writing an NDA
There are a lot of standard templates you can use but personally I would use a solicitor to draw it, it shouldn’t be very expensive as the agreements are relatively standard.
Also, for the NDA to be legally binding, you must ensure a relevant person signs it, like a director or officer of the company. For example, if you appoint a marketing agency, a junior consultant signing the agreement is not a good idea as they most likely don’t have the authority to sign. Just check if they have the authority, it is not rude to ask so don’t worry about it, it’s just business. At the same time, if the person signing is a registered director of the company, don’t ask if they have the authority because they DO!
Might be a good idea to record your meetings or presentations, ask the people present at the meeting to sign a paper copy of the presentation.
However, the reality is that a lot of the times people will refuse to sign an NDA. I know a lot of investors or VC’s that will not sign! It is up to you to decide if it’s worth the risk and disclose information without an NDA.
Unfortunately, taking risks is part of doing business! And at the end of the day, you could have all the protection in place and it will still be impossible to control what is being disclosed and even harder to prove who has disclosed what.
My final advice is, do the best you can to protect your business but also take risks, seize opportunities and turn your idea into the next unicorn!
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