5 Common Mistakes Startups Make When Using NDAs
Learn about common mistakes you should avoid when using a Non-Disclosure Agreement.
What is an NDA?
An Non Disclosure Agreement is a legal document used as a protection measure to prevent the parties that are subject to the NDA, such as your investors or employees, from disclosing any information regarding the business that you wish to keep confidential.
Note: There are different types of NDAs – unilateral (one way) and mutual.
Unilateral NDA: the business discloses the information to another party and the receiver party agrees on not disclosing the information.
Mutual NDA: the parties agree not to share the other’s information. This type of non disclosure agreement is generally used when two businesses share confidential information.
Five common mistakes to avoid are as follows:
Not identifying the information that should be included in the NDA
Firstly, and most importantly, you need to clarify and define which information is confidential and needs to be protected. Most common discussions between the parties to NDA need to not be protected, such as your vacation plans. Otherwise, the NDA can become a lengthy and confusing piece of document that takes up time and resources.
Thus, you should look over your business strategies and identify information you believe qualifies as a “trade secret” or information relating to finances or customers/vendors that you would like to protect.
Not identifying WHO is party to the NDA
Ensure that your NDA explicitly highlights the parties to the contract whether it be your employees, investors or any other party that will have access to the confidential information. You may need to have different NDAs for your investors and your shareholders depending on the difference between the information you wish different parties to keep confidential.
It is a good idea to also highlight the subject parties’ obligations and placing limitations on these specific parties in discussion of the confidential information.
Not realising that NDA is not enforceable until it is signed
NDAs can only be effective in protecting your information if they have been signed and agreed upon by the intended parties. Without such consent an NDA lacks enforceability and cannot be effective in protecting you against potential breaches of information disclosure. Thus it is crucial that you sign an NDA BEFORE sharing any confidential information regarding the business with the other parties.
Not outlining the specific dates for the NDA
The NDA needs to clearly state the start and end date for the time period in which the information may be exchanged between the parties. The dates need to be specific to ensure the NDA’s effectiveness. For example, you may wish to exchange confidential information only at the start of the business collaboration or towards the end.
Relying ONLY on an NDA for protecting your information
An NDA is an effective measure but additional steps should also be taken to protect your confidential information. This may involve taking physical measures such as use of vaults and safe, or the information flow may operate on a ‘need-to-know’ basis with additional information security policies in place.
Now that you’ve learnt from the mistakes of startups who have become for you, you can customise our free Non Disclosure Agreement to easily protect your ideas.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from our largest online network of expert lawyers or to get answers to your legal questions.
Ananya is currently working in our content team as a Paralegal, aiming to provide free legal guides to facilitate public access to legal resources. Pursuing her interest in the regulation of emerging media, her work centres on the legal and business concerns engendered by the application of traditional legal principles to social media.