A non-disclosure agreement (NDA) is a legal contract between two or more parties that prevents sensitive information from being shared with others. NDAs are also called “confidentiality agreements.”
There are two types of NDAs: unilateral NDAs, where only one party is obligated to maintain confidentiality; and mutual NDAs, where both parties agree to maintain confidentiality.
What is the purpose of an NDA?
NDAs are used to protect sensitive information, such as trade secrets, business plans, production information, financial information, customer information, technical data, intellectual property, and more. This protection is often crucial for businesses to maintain a competitive edge and to foster trust in business relationships.
When should a startup use an NDA?
An NDA is essential whenever sensitive information is shared with another party. Parties exploring a potential business relationship often enter into a mutual NDA as a first step in discussions. Examples include startups exploring hiring a vendor or supplier, or entering into a partnership or joint venture with another company. If the parties decide to move forward with the relationship, they will enter into a separate definitive agreement, such as a software development agreement or product manufacturing agreement.
Startups hiring employees or independent contractors should also use NDAs. In that situation, the hiring paperwork, such as the employee offer letter or independent contractor agreement, should incorporate an NDA or be accompanied by a separate confidentiality and intellectual property assignment agreement.
Startups should generally not ask venture capitalists (VCs) to sign an NDA. VCs typically will not sign an NDA due to industry practices and to limit their liability, among other reasons.
Where can I find a form NDA?
The internet is replete with NDA forms—some are good, while others are quite poor. An NDA from the internet can be a good starting point, but a company will benefit from the counsel of an attorney, who can tailor the NDA or recommend using a different form.
The Marquette Law and Entrepreneurship Clinic has a mutual NDA on its Build website. The form is designed for situations where a Wisconsin small business is exploring a business relationship or partnership with another business. This form is not designed for use with employees or independent contractors.
What terms in an NDA are important?
The following are some of the most important terms in an NDA:
Definition of Confidential Information: This term specifies what information is considered confidential. It’s important that it cover all sensitive information the disclosing party will share with the other party.
Obligations of the Receiving Party: This outlines the duties of the party receiving the confidential information, including how they must protect and limit the use of the information.
Term: This details the duration of the NDA. Confidentiality obligations typically last one to five years after an NDA terminates. Also, it’s common to require parties to keep trade secrets confidential indefinitely. , including how long the information must be kept confidential. It’s common for an NDA to have a term of one to five years.
Consequences of Breach: This describes the legal remedies and consequences if the receiving party breaches the NDA, providing a deterrent against unauthorized disclosure and use. Its standard for parties to have petition a court for injunctive relief to prevent further disclosure or misuse of confidential information. This is important as monetary damages alone are often inadequate.
What should I do after an NDA is signed?
After the NDA is signed by both parties, ensure that all parties fully understand and agree to its terms. Keep a signed copy for your records and actively monitor compliance. If any issues arise, consult a legal professional for guidance on enforcement or potential modifications. It is also important to ensure your company adheres to the agreement. Upon termination of the agreement, the discloser should confirm the disposal or destruction of all confidential information.
What if I need additional help?
