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When and why startups should use an NDA

16 May 2017

So, you’re about to start a new business venture. You have a great idea that’s going to make you millions. Problem is, how do you launch it without someone copying you?

 

Whether you are trying to find, investors, advisors, or potential business partners, there is a real risk that someone out there might copy your idea once they get wind of it.

 

This is a legitimate concern for many entrepreneurs. At the end of the day, there are plenty of organisations out there who might just have the means and resources to beat you to market, with all your hard work going to waste.

 

We’ve previously discussed why Intellectual Property is important for entrepreneurs. Confidentiality, know-how, trade secrets all fall within the remit of Intellectual Property. That’s why it’s fundamental to understand how Intellectual Property can impact you, your idea and your future business plans. This is so you can take steps to minimise the risks that are inherent in starting a new business. A non-disclosure agreement (NDA) is an important early step to help protect your Intellectual Property.

 

NDA and CDA – what’s the difference?

 

For all intents and purposes, there isn’t one.

 

Business owners often feel alienated when confronted with new and seemingly complicated terminology. There is absolutely no need. Whilst I appreciate some aspects of the law can appear complex (I certainly wouldn’t like to be in the position of restructuring the UK legislative framework in light of Brexit), most business law fundamentals are relatively easy to grasp.

 

There are plenty of resources online and elsewhere that keeps law simple. Commonly, different terminology result from various countries applying their own descriptions to legal concepts, or traditional language still being applied to certain aspects of the law.

 

In the case of NDAs…

 

Confidential Disclosure Agreement, Confidentiality Agreement, Non-Disclosure Agreement, and Secrecy Agreement all very much mean the same thing, and are designed to serve a specific purpose in business. What is importance is whether their content serves the desired purpose.

 

What purpose do they serve?

 

As a child, a pinkie promise gave you pretty solid peace of mind to pass on that secret to your school friend. We have grown to accept that sometimes, a promise is not enough. It’s all about using the written word to cement business relationships.

An NDA helps you do just that.

 

Types of NDA

 

An NDA can be one-way or mutual. A one-way NDA can be used when you are sharing (or disclosing) information to someone (the recipient). As the name suggest, a mutual NDA is appropriate where both parties will be receiving confidential information.

 

When to use them

 

For a startup business, you may need to share business plans with advisors, investors, manufacturers, and anyone else needed to help you get off the ground.

 

Sometimes, confidentiality clauses will be contained within standard terms or other agreement between you and them. In such cases, it may not be necessary to have a specific NDA between you, unless the existing provisions are insufficient to protect the information you intend on sharing or the purpose of that relationship.

 

If you do opt to have a separate agreement, then there must be intention for the NDA to supplement any existing contracts between you.

 

So, the idea of a NDA is to allow you to share information with individuals and businesses with the peace of mind that they won’t copy your idea, or run off to your nearest competitor (amongst other risks).

 

When not to use them

 

Sometimes the reality can be very different. Whilst many people recognise the important of respecting the terms of an NDA, others may not take them so seriously.

 

You may be tempted to frivolously go around having people sign your NDA, then proceed to tell them the nitty gritty of your new business venture. The risk is, many people aren’t aware of the restrictions an NDA places on them. They may speak openly about what they’ve been told without considering the consequences of doing so.

 

If this information falls in the wrong hands, often the damage is irreversible. Any remedy you may be awarded as a result of the breach may not necessarily compensate for the damage caused.

 

This also suggests that if you do rely on NDAs in the course of business, ensure you have the intention and means of enforcing its terms.

 

NDAs for startups

 

The point is, NDAs are great for businesses just starting out. When used correctly, they do a great job to give you the flexibility to share important information with others about your business. This can help you seek advice, gain investors, or further develop your idea into a tangible product.

 

The general rule is, if you don’t trust the person you are thinking of sharing information with, don’t tell them anything you want to keep secret!

 

If you’re ever in doubt, don’t forget to seek professional advice and avoid putting your next big idea in a position of risk.

 

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