For a startup, an NDA (Non-Disclosure Agreement) is one of the most followed types of legal documents. It is not only for Intellectual Property Rights, but also to keep internal business models and operations safe. We know that understanding the NDA and other aspects of it may be difficult for you.
Non-disclosure agreements, or NDAs, are widely used in business for a good reason. They create an impenetrable barrier between you and your competitors, and if you work with collaborators or shareholders, they give you peace of mind that nothing you say will be used against you in the future. Here's everything you need to know about the non-disclosure agreement (NDA) for startups in India.
An NDA is a legally binding contract that protects your Intellectual Property (IP) and other proprietary information. They typically prohibit the signee from discussing or using the specified information with others or for personal gain. In the event of a contract breach, you or your company can file a lawsuit to prevent further breaches or recover damages.
NDAs can only protect certain types of information. Because it is not private, your basic business idea, for example, is not proprietary information. If you pitch your ideas at networking events, those ideas are not private. You can protect your company's secrets: high-tech processes, business plans, lines of code, or other valuable intellectual property assets.
While NDAs are legal documents, their effectiveness is limited by your willingness (and financial ability) to enforce them through litigation. Nonetheless, they are necessary for establishing a tone of confidentiality and discouraging careless chatter.
There are six points to consider if you want to sign these as a founder or member of the management team:
Recognition by the parties
Security and privacy concerns
Possession of the material disclosed
What if the beneficiary discloses or uses the disclosed material without permission?
Any licenses granted by the appropriate authority to use any proprietary information and other patented technology items associated with this material
How long will this disclosure last? NDAs are typically limited to one year or until both parties agree to terminate them.
All startups must have a standard NDA in place to protect their privileged data. When and where you use it is determined by your company and the information you are attempting to safeguard. Anyone who has contact with or access to confidential information should sign an NDA.
Contractors working on their own (Independent)
The most common and important reason for using an NDA is for contract workers who work for your company. These individuals are not subject to the same contractual obligations or social ties as regular employees, but they may come into contact with confidential information while on the job. Before beginning a relationship, have any self-employed or contract employees sign an NDA.
Partners
If your company outsources parts of its procedure to third-party vendors or works closely with another company on a shared action plan, it's a good idea to have each other sign an NDA to protect trade secrets.
Co-founders
People you founded your company with should be people you can confide in. However, circumstances can influence how effectively (or ineffectively) your business grows. Individuals with the most access to the company's intellectual property must sign NDAs in the event that they leave or attempt to launch a competing product.
Employees
Several companies require NDAs for all employees, while others do not. Your standard employment contract may cover similar grounds in terms of organizational ethics and confidentiality. If you have employees who work with sensitive information, have them sign one as well. This will protect you if you are taken over by another company.
Potential employees
You may want to have late-round interview candidates sign an NDA if they have access to any patented technology, internal procedures, or information during the hiring process. This is especially true when hiring for higher-level positions like CEO or CFO, where the candidate may have previously worked for a competitor.
If one party violates the terms of a non-disclosure agreement, the other party may sue for damages. Compensation damages are intended to place the injured party in the position they would have been in if the agreement had not been broken. The judge may also impose civil penalties to punish the violator and deter others from breaking similar agreements. In some cases, the court may order the violating party to pay legal fees and court costs. Damages may not be awarded in excess of twice the amount of civil damages.
Furthermore, courts generally choose lower amounts because harsh penalties may impede the public's ability to independently share information. In addition, there is no cap on civil damages, attorney's fees, or legal expenses. In India, a breach of a suit for damages is always taken seriously because it implies that one party has been harmed by another person or company who has breached an important commitment made between them. As soon as these claims appear on their case file, the court system is likely to pay close attention to them.
NDA is a legally recognized right granted to parties to protect their business's confidential information. It prevents the receiving party/parties from exploiting the shared confidential information, and in the event of a violation, the parties will face legal consequences. Parties can always refer to the agreement for clarifications at any time, but if the agreement is not properly drafted by an advocate, the disclosing party and the business will suffer significant losses. If an NDA is not clearly drafted, it can lead to confusions, conclusions, interpretations, and exploitation of such confidential information, and the disclosing party will fail to protect its confidential information even after entering into an NDA. Simply entering into an NDA will not suffice. It is always important to check if the clauses are clear and idiot-proof so that all of the clauses are clear from their respective sides. An advocate should ensure that there is no room for the opposing party to interpret the document differently than it is written.
Intellectual property is critical for any business. Entering into an NDA is important because it legally protects the business parties' intellectual property rights and prevents the receiving party/parties from disclosing confidential information. Even if it is violated, the parties will face legal consequences/penalties.
The NDA not only obligates the parties to keep confidential information confidential, but it also provides legal remedies and penalties for any breach of the agreement, such as injunctions, indemnification, and attorney fees. When a dispute arises between the parties, the parties can contact their chosen alternative dispute resolution mechanism at any time, and the aggrieved party can sue for damages.
NDAs also include clauses for protecting and maintaining the confidentiality of confidential information, such as a pre-determined NDA term that ensures the confidentiality of confidential information even after the agreement expires. The disclosing party has the right to recover the shared confidential information soon after the agreement expires. Furthermore, certain exceptions are provided to protect the receiving party from liability for disclosing confidential information.
If an NDA is not signed before sharing confidential information with any entity or individual, the right to seek legal protection and remedies is forfeited. As previously stated, confidential information plays a huge role in running any business, and if it is disclosed to any unauthorized person, it will cause irreparable damage to the business, and the law will be powerless to help in this situation. As a result, it is always critical to enter into an NDA agreement before engaging in any major business activities. The best first step is to take precautions, such as signing an NDA to prevent confidential information from being disclosed. It is always better to be safe than sorry, as previously stated.
Considerations When Forming a Startup NDA
It's a good idea to draught a standard NDA that you can easily send out when necessary. Our NDA template can help with this, but here are some key concepts to keep in mind when drafting your own.
NDAs typically have two signee requirements:
They must keep the information confidential.
They are not permitted to use the information themselves.
Other provisions, such as noncompete agreements or prohibitions on employee solicitation, are occasionally added by businesses.
Because NDAs can be mutual or one-way, plan how and when you will use both types of agreements.
One-way NDAs are more common; use them when only one party of the relationship will share private information with the other. NDAs for contractors, employees, and others who may be exposed to your company's private dealings are examples of this.
Mutual NDA bind both parties to the NDA's terms. They are useful in collaborations where both parties may have access to each other's confidential information. They are more difficult to create and enforce, so avoid them unless absolutely necessary.
Non-disclosure agreements appear to be low-cost, simple-to-create legally binding documents that keep personal data confidential between two or more parties. Firms and individuals use them to protect their businesses or personal information, and they allow companies to collaborate without fear of competitors gaining access to confidential information. It is critical to be as specific as possible when drafting an NDA so that all parties understand what information can and cannot be shared, as well as the consequences of disclosing details. That mostly sums up the Non- Disclosure Agreement (NDA) for Startups in India. Compliance Calendar LLP is available if you need professional assistance with the NDA. We can handle it while you get the venture capitalists to sign your pitch deck.