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Is it wise to use NDAs in the formative stages of your business?

On Behalf of | Jun 6, 2022 | Business Formation & Planning

As a new business owner, you want to protect your ideas. You know that non-disclosure agreements (NDAs) are used to keep trade secrets, proprietary information and customer data confidential.

However, it’s important to use sound judgment regarding whom you require to sign an NDA in the early stages of your business. If you require potential partners and investors to sign one before even discussing your ideas and business plans with them, you could push them away.

What should you consider before requiring someone to sign an NDA?

One author who has written on the subject notes that most people who are in a position to invest in a start-up don’t need to steal other people’s ideas. They hear new ideas all the time. If they went around stealing people’s ideas, they’d likely have a notably bad reputation. He also reminds people that it’s typically only in the execution that an idea is valuable.

As for potential partners, you don’t want to approach someone about going into business together only to have them steal your idea. However, if you don’t trust them, why are you asking them to go into business with you? That’s something to consider.

What’s the best way to approach someone with an NDA?

Maybe you’ve been burned before or you’re in an extremely competitive field, and you don’t feel comfortable discussing details of your business idea with anyone without an NDA. You’ll need to use them as the business gets off the ground anyway for vendors, contractors and employees.

The best way to approach anyone with an NDA is not to make it personal. When you use them, use them consistently.

At this point in your business formation, you can stress that in the interest of maintaining “good governance” or “best practices,” you’re asking everyone you discuss your business plans with to sign an NDA. They may appreciate and understand your concern.

When contemplating the use of an NDA, and certainly when drawing one up, it’s important to have experienced legal guidance. This can help you lessen the chances that someone will violate the terms or that it won’t hold up in court if you have to enforce it.