Before setting up a business in the market, founder must go through the legalities in the business with respect to legal documents that would be beneficial to the business. For any start-up company NDA (Non disclosure statement) plays a key role as it will reduce the chances of future disputes that can lead to legal disputes and eventually cause loss to the company. It is recommended that a NDA should be prepared by a legal attorney or in the guidance of legal attorney for inclusion of all the important clauses.
What is included in NDA?
NDA stands for non disclosure agreement. Confidential information can be protected by signing a NDA, as it comprises of clauses that says that the person signing the agreement cannot share company’s private information with the third person. NDA can be signed with various people in the company such as:
- Founding members
- Business Contractors
- Other high rank officials in the company that have access to confidential information.
What are the clauses that must be added in the Non disclosure agreement?
- Definition Clause: This is the most important clause in the NDA as this agreement has relevance without the definite meaning of confidential information. The definition makes the criteria easy to analyse that what information is included in confidential and not to be shared for both the parties.
- The Parties: The agreement must include the parties’ clause to eliminate the confusion in coming future i.e. the receiving party and the disclosing party to whom it is essential to share confidential information in the due course of business.
- Time period: The clause should precisely define the time period for the execution of agreement and the after time execution. For example the agreement is enforceable for one month and any information can’t be disclosed for further 1 year.
- Use of shared information: If some confidential information is shared with the concerned person for the business transaction then the use of that information must be limited to the business only and the criteria must be explained in this particular clause.
- Consequences for breach: The consequences for breach of agreement should be enlisted in the agreement itself to avoid any hassle in the future.
- Jurisdiction: If some issues arises in the future between both the parties then the jurisdiction clauses comes into the picture. The clause define specific place where the matter would be referred if any consequences arises.
- Legal Fees: The agreement should be clear regarding the fee if any dispute arises in the future.
- Remedies: The possible remedies that can be accepted in case of breach of agreement must be stated in the NDA agreement.
Importance of signing NDA with Co founders
- Protection of Information: Preparing NDA will ensure the protection of relevant information in the company, which is the key source of development and success in the company. Moreover, IP rights can also be protected by signing Non disclosure agreement with co founders.
- Decreases the risk of competition: There is always a chance that the founders get separate in future and results in creation of competition as they are well acquainted with the company’s information. Therefore, to protect the company from the competition in the market a non disclosure agreement must be signed between the co founders.
- Ensures Security: The security of the company can be protected by signing a non disclosure agreement, as the agreement will ensure that all the crucial information will remain in the safe hands and not transferred to third party.
- Create enforceability in case of breach of agreement: As the agreement is a legal document that is enforceable by law makes it more relevant and create accountability. The agreement helps the company to deal with the legal consequences that may arise in the future.
In order to save company’s confidential information, their IP rights and other relevant data NDA agreement must be well drafted and signed before commencing the business irrespective of the relation with the founding team. Most of the companies are not aware about the legal framework and documentation before establishing company and ends up in early winding up of the company. Therefore, it is the basic requirement to know about the legalities and related documents before establishing any business.
-Associate at Aggarwals & Associates, S.A.S Nagar Mohali