How to sign an NDA? Tips for startups on who, when, why and how can sign an NDA

Originally I shared this guide on Syndicode blog.

I work in a software development company called Syndicode. And for providing our services we need to deal with tons of different documents our developers and our clients should be signing before the actual work start. An NDA is one of those documents. Today I decided to tell you about non-disclosure agreement in details, why it is so important and what you should consider before signing. So, how to sign an NDA? Tips for startups (and enterprises too) on who, when, why and how can sign an NDA.

What is NDA?

In short, an NDA (non-disclosure agreement) is a legal contract between two parties to keep confidential information secret and not misuse the information without consent.

Put it simply, usually, an NDA is a couple of pages that are focused on protecting important information, such as code, algorithms, strategies, sales lists and so on. If there’s a violation, there can be monetary damages as well as a court order to prevent further disclosures. You shouldn’t underestimate the importance of a non-disclosure agreement!

Why NDA is important?

Most successful entrepreneurs and largest corporations insist on executing and signing an NDA before discussing a partnership, merger or joint venture. This action is vital to prevent such issues as the unexpected appearance of products they shared during the negotiations and discussions on the other company’s product line. Signing the agreement will also ensure that the trade secrets of both partners will remain safe.

When you need an NDA?

1. For intellectual property protection. Intellectual property is the area of law that makes it possible for authors to copyright their books, engineers to patent their designs and brands to trademark their images and logos. You need an NDA if you have (patent, trademark or copyright):
   - Proprietary information,
   - Confidential information (like business models; plans or prototypes; information about clients or customers; patients’ test results etc).
   - Novel inventions,
   - Designs,
   - Trade secrets,
   - Copyrighted works and so on.
2. When you want to engage a contractor or to hire an employee who is most likely going to have access to your valuable or business confidential information. In these cases, you need to sign an NDA.
3. For licensing relationships. For example, when you want to show your prototype or ‘secret ingredient’ to somebody, but want to make sure that they wouldn’t expose or steal your idea.

NDA main features

Generally, regardless of the purpose of an NDA, it contains a few specific pieces:

• Definitions of confidential information;
• Obligations from all involved people or parties;
• Time periods.

What should you consider when signing an NDA?

1. Read NDAs carefully to make sure that you understand the terms and consequences of any NDA that you use and/or sign.
2. The first thing to ensure is that you get right the company’s legal identity. The legal name of the company should be correct in all parts of the document. Even simple things such as forgetting to include the word ‘Limited’ or wrong spelling a company’s name, can result in disastrous consequences. The whole agreement could appear invalid.
   Note, that many companies have two names:
   - One name they use to trade and do business with;
   - Another name is used when they incorporated as a company.
   The needed name is normally noted on the founding documents of incorporation such as the articles of formation or organization (USA), memorandum of association (UK) and articles of incorporation (Canada).
3. Make sure the person signing the non-disclosure has the powers to bind the company in such an agreement. Except for CEO, the board might appoint company officers to carry out day-to-day functions such as signing contracts on behalf of the company, issuing checks and opening bank accounts. Also, the authorized person should be signing the non-disclosure agreement clearly on behalf of the company and not in his/her own personal capacity.
4. When signing an NDA, you must ensure that you cover for the possibility of any future organizational changes including takeovers, mergers, and employees leaving the company, you may wish to include a clause that the non-disclosure agreement will be binding upon such organizational changes.
5. Find out whether this NDA should be a unilateral or mutual (in case if you have some confidential information that belongs to you). In NDA is mutual, both parties are required to keep confidential information private and not use the disclosed information without permission.
6. Watch out if the definition of confidential information that is within the NDA is too broad. Demand it to be clear and not having two meanings.
7. Pay your attention to the duration of the confidentiality obligations stated in the NDA. Not all non-disclosure agreements have finite durations. Some durations are perpetual (like those that normally apply to trade secrets). Despite that fact that confidential information generally loses its value over time, especially in the fast-changing tech world, there should be a clause for the return of any confidential documents.
8. Read carefully the passage about share and use of confidential information. Some NDAs might have a residuals clause (put it simply, some leftovers in a human’s memory). This question also defines to whom you can disclose the confidential information.
   - Here you also should pay your attention to the way in which the confidential information is going to be disseminated (emails, phone calls, mail etc).
9. Make sure that your NDA does not transfer any intellectual property rights if you have no intention to do so. Because some NDAs are specially drafted in a way to allow the transfer of such rights. And suddenly your ideas might become no longer yours in a way you even didn’t recognize.
10. Ensure the terms and provisions you want to put in your contract comply with your country (state’s) laws. Contract law is always going to be state law, so you will need to make sure you meet your country’s requirements.
11. Read carefully about how damages will be calculated. When we say ‘damages’ we mean the wrong way the recipient of the confidential information disseminates the information that is the subject of the NDA. For cases like this, in order to define the ramifications of such a breach, a non-disclosure agreement has a damages clause. In this clause, you’ll find the description of the way damages are calculated.
12. There also could be some miscellaneous clauses, such as those in the example below:

• If there is a lawsuit, will the losing party pay for the legal fees? To prevent legal actions that do not have much merit, you’d better draft an appropriate clause.
• Where will the case be tried and what state’s law will be used? That matters the most! Especially, if the other party is based in another state.
• Will there be an alternative to a court trial? Sometimes mediation and arbitration can be quicker and much less expensive.

Ways and tools to sign an NDA

The ultimate, safe and well-known way to sign all types of documents including an NDA is the next path:

1. Converting the entire document (.doc, .docx of whatever Word format you had) of your NDA agreement into Adobe PDF format.
2. Printing out the signature page and signing it.
3. Scanning the signature page into a separate PDF file.
4. Replacing the unsigned signature page with the signed one.
5. Emailing the signed PDF version of the NDA agreement to the other company/person/party for counter-signature.

Apart from this method, you can use some online services to sign your NDA digitally. You can consider some of the most popular of them:

• DocuSign
  This is one of the most common ways of getting digital signatures. DocuSign works like this: you upload an NDA agreement to their website, then identify the people you want to sign it using tags to indicate spots for signatures; then DocuSign emails the document to the signatories for their electronic signatures and stores the completed agreement for you to access.
• RightSignature
  This is another electronic signature service started in 2009. It works in a similar way to the previous service but has a more user-friendly appearance.
• HelloSign
  This service is special thanks to HelloSign’s API White Labeling which means that a signer page is customizable to match any needed color scheme. The rest of the options are pretty similar to competitors’. Also, HelloSign allows you to have up to 20 signatures in a single document (up to 20 parties).
• Adobe Sign
  Adobe was one of the first software companies to enter the e-signature space. Managing signing workflows is available from any location with any device. Plenty of integrations third-party tools included, and global compliance provided.
• DigiSigner
  DigiSigner is known since 2013, so its user base is smaller than the user bases of its competitors. However, it has pretty the same options and nice-looking interface. It’s available for free but has more advanced options on a paid basis.
• Eversign E-Signature
  This service provides secure work with many available document templates, branding, and integrations. With Eversign’s free e-signature plan users will receive five documents per month, three API documents and one team member.

Useful materials to read more about NDA

• Who can sign non-disclosure agreements
• 12 ways a non-disclosure agreement is misused
• Filling out Confidentiality Agreement
• Tools to Sign NDA Agreements Electronically (2017 edition) plus Digital Signature Software reviews to choose the best one from

I hope this material will be helpful when you will be signing your NDA! However, if you run your business and would like to hire developers (or designers, or managers) for your project, you should also explore the discovery session procedure.