Non-Disclosure Agreements (NDA’s) and Start-up Businesses: Do you need one?
So what is an NDA? It is contract (also known as a “Confidentiality Agreement”) entered into between two or more parties to protect any confidential information that they give to the other(s) about their business.
An NDA might be particularly important if your business is developing new products and sensitive or technical information is being disclosed to third parties. The risk increases if you haven’t yet formally protected those products by, for example, applying for patents. It is worth pointing out that you might never know whether a third party has breached the agreement, so perhaps the strongest argument for entering into an NDA, is that once the other party has signed it, they are less likely to recklessly, or intentionally, share your information with others.
This does not mean however, that it is appropriate to ask for an NDA to be signed in all circumstances. For example, potential investors or informal advisors may be reluctant to sign one. There is a sensible argument that, if you are discussing your business in general terms, you should be able to avoid giving away the “secrets” of the business.
If you decide that you would like to have an NDA in place, perhaps because discussions have reached a stage where more detailed or technical information needs to be shared, it is certainly best to avoid simply fishing for an agreement online via a search engine. NDA’s can be quickly and inexpensively drafted by a solicitor to suit your needs. Practically, the recipient is much more likely to enter into an NDA if the agreement is drafted both ways (i.e. protecting any sensitive information they happen to disclose to you as well), and I’d recommend to always give the other party advance notice before any meeting if you would like them to sign one. The reaction to a NDA simply being shoved across the desk at the start of a meeting will usually be unappreciative!
It is often said that an NDA is only as good as your ability to enforce it. I have to acknowledge that there is a certain degree of truth in this, as the costs of pursuing Court proceedings may well be unaffordable for many new businesses. However, an NDA provides a basis for an action in breach of contract which is more straight-forward then the common law alternatives. In particular, it cannot reasonably be argued that the recipient wasn’t under a duty to treat the information as confidential. Unfortunately, there are occasions when a breach of trust is so serious that a business has little choice but to take action and an NDA places you on the front foot.