Legal Talk 5: What Are NDAs?

You just have a quick question.

You say "Hey Legal Coach, when should I ask people to sign this Non-Disclosure Agreement (NDA). I don't want to come over as too formal and legalistic and put them off".

Okay, I understand. It can be a bit embarrassing sometimes to talk about the NDA because it introduces the concept that you somehow don't trust the person you're talking to and fear that they might run off with your ideas. Here are some tips: 

1. Bargaining Positions: Sometimes introducing an NDA will simply depend upon bargaining positions. If you are doing an initial pitch to a big VC then they may just laugh you out of the room if you introduce an NDA, as they might point out that they receive hundreds of pitches every week and so can't sign an NDA with everyone. Also, the VC is not really in a position to take your idea forward anyway, especially if it is quite niche and needs your specialist skills. Plus, you need their money, and so at the moment they  hold all the cards.

On the other hand, if you are talking with some small Angel investors then you might introduce the concept of them signing an NDA. Your argument is (in a more sophisticated way than I can put it and one which needs to be softened somewhat by you), what have they got to lose by signing your NDA if they are not going to steal your idea?

2. Timing: Sometimes you can show someone the bare bones of your idea without disclosing too much. This is a good strategy a lot of the time. However, if it really does become serious where they are doing due diligence on you (i.e. checking you and your company out legally) then at this stage it is good to raise the NDA.

Even if they say no to signing your NDA, at least it shows that you are on the ball, know something about NDAs and have thought about this. I personally enjoyed this link on NDAs: https://www.telegraph.co.uk/news/0/non-disclosure-agreements-everything-need-know-ndas-misuse/. It's a good bit of further research!


However, at this stage you are probably thinking about putting together a letter of intent (basically a letter saying that they are interested in doing business with you or investing), in which case the letter of intent might have a confidentiality clause in it anyway (and so the NDA might not be necessary). 

You say goodbye, but I’m still thinking of you and your business and how we can work together to help it grow fast.

Yours truly,

Jimmy Desai
Your Legal Coach

​P.S. Don't forget to subscribe and get even more exclusive content and legal insight. As always, this legal talk and all the legal talks are subject to our disclaimer, which you can find here.

​© 2019. Coaching Law Limited. All rights reserved.

Legal Talk 4: How Can I Keep My Ideas Secret?
 
You've just called me. It's raining on Chancery Lane and so I nip into the local pub to take this call. You really need to know about the law on confidentiality. Your key concern is that you don't want anyone to steal your ideas and go and set up something similar themselves. However, at the same time you need to tell people about the idea before they will agree to help you. The people you need to tell include potential employees, potential investors and potential affiliates and partners.

What a dilemma! 

You have heard of confidentiality agreements and NDAs (Non-Disclosure Agreements) but don't know the ins and outs of these agreements. Could I clarify? In short, here are some key things to remember:

1. Template Agreement: NDAs are usually in the form of a template agreement which you can amend. There are plenty on the internet that you can find at varying prices and some are free. 

2. Mutual: Many NDAs are mutual. This means that each party keeps the other party's information confidential.

3. Purpose: The NDA usually states that each party keeps the other party's information confidential whilst also outlining the purpose for which the information can be used. The information is not to be used for any purposes other than the agreed purpose.  

4. Nice Additions: Some nice additions to the NDA include clauses which say that each party is not guaranteeing that the other party will find the information disclosed useful or that the information disclosed is accurate or complete. This helps you a bit in that if you do release information then you don't want people coming back saying that it was not what they were expecting in terms of quality or content. Some NDAs also make it clear that the NDA does not oblige a party to disclose any information to the other party, so it's up to you whether or not you disclose anything and also it's up to you what you disclose. 

5. Boilerplate: These are standard legal clauses in the NDA that typically feature at the end of an agreement. For example, it could include a clause just stating that the NDA is governed by a particular law (e.g. English law or US law) and where any disputes should be resolved (e.g. the English courts or the US courts etc.). 

6. Practicalities: Some of the most important things to understand are that: 

(a) if the NDA is breached by the other party then have you got the time, money and resources to enforce it against the breaching party?

(b) if the other party breaches the NDA then can you prove that the other party got the information from you (and not from some other public source)?

(c) have you specified in the NDA exactly what kind of information is being disclosed to the other party?

7. Don't Worry: The answers to 6(a), (b) and/or (c) are usually "NO". If that is the case then you need to ensure that: 

(a) you limit the number of people to whom the confidential information is disclosed to and set this out in the NDA. If you are talking with BIGCO (or any company that has quite a few people working for it) and they agree to sign an NDA, then try to say in the NDA that only specific people should have access to this. If the information is leaked or copied then it is likely to have been disclosed by those specific people; and

(b) remember that trying to prove in court that someone has leaked or copied your idea is not easy. So, limit the amount of disclosure as far as possible because enforcing the NDA is really the option of last resort. An NDA is often used to deter a party from disclosing confidential information but you just don't want to have to invoke it.

Does this help? You say yes but it's a lot to take in. I understand, but get a template for an NDA first of all as that will cover a lot of the ground. 

I walk back along Chancery Lane and hope that some of my tips on NDAs prove useful for you. I can't wait to hear how your investment round talks are going. 

Yours truly,

​Jimmy Desai
Your Legal Coach
​
P.S. Don't forget to subscribe and get even more exclusive content and legal insight. As always, this legal talk and all the legal talks are subject to our disclaimer, which you can find here.

​© 2019. Coaching Law Limited. All rights reserved.

Legal Talk 3: Don't Lawyers Cost  Lot?
 
We are in the Hoxton in Holborn. It's full of start-up people, funders and lots of excitement.

You say that you're thinking of hiring a lawyer, and that you’re not sure that they're any good but that they were recommended by a friend. You googled them and there were a few comments which were okay, but you just need to do a bit of thinking.

One thing we can talk about now is cost. You are trying to make money, not spend money. If you are spending money then you obviously need to make sure that you get a great return. So, when you're talking to your lawyer one thing to really be clear on is cost. Don't be shy about asking. In my experience, the number one reason that there are complaints about lawyers is not that the service was poor but because the cost came as a big shock. So, ask about cost up front.
 
Also, asking what the hourly rate is, is not asking about cost. Nor is getting a reduction in the hourly rate. This is because even if the hourly rate is low, the lawyer can spend a long time doing things that make the whole matter more expensive.
 
So, if you are shopping around, you need to pin down what the costs are likely to be in total.
 
If the lawyer shies away from this question and says that it is impossible to say, then ask them if they have done this kind of thing before and, if so, how much did that come to. If you can get them to commit to a range of cost (low to high) then you can ask them where you would sit in that range. By playing this narrowing down game you can eventually get to a figure.
 
It sounds like a bit of a pain, but it’s worth the conversation. It could save you thousands. I understand that it might feel a bit embarrassing to talk about cost, as it can be so unseemly. Thing is though that actually you are just buying a service and you need to get the best value that you can. If you are the shy type then it might be a good idea to take someone along with you who is a bit pushier or who has bought legal advice before. Overall, don't be ashamed into accepting whatever is quoted. Negotiate.

At this point I'm going to have to dash. Let's meet again to chat more.

Best wishes,

​Jimmy Desai
Your Legal Coach
​
P.S. Don't forget to subscribe and get even more exclusive content and legal insight. As always, this legal talk and all the legal talks are subject to our disclaimer, which you can find here.

​© 2019. Coaching Law Limited. All rights reserved.

Legal Talk 2: My First Few Basic Legal Questions

You are on the phone to me with 2 quick questions. You say it's a bit embarrassing to ask anyone these questions because you are a leader at your company and so you fear that asking these kinds of questions to co-founders, directors, shareholders or investors might make you look weak or naive. But how are you supposed to know this stuff? Your questions are as follows: 

Question 1: You can't understand why your lawyer won't give you detailed tips or hints on how to deal with your individual shares. You are thinking of hiring them but they said something about them being hired by the company which you found a bit puzzling. 

This is a question that comes up all the time. It is quite simple. You and the company that you set up are different legal entities. Yes, at the start you might be the only person involved so you and the company (in your eyes) are one and the same thing. BUT, as soon as you get other shareholders and investors involved then they have a slice of your company. So, your company and you are then not really the same thing in that the company's interests (i.e. the interests of the shareholders and investors that own a slice of it) may not be exactly the same as your interests. 

Maybe an example would help. Say on day one you are the only person involved in your company. If the company is making some money you can decide how much you decide to pay yourself and no one will really complain. You could pay yourself pretty much all the profit the company makes. But, as soon as you have shareholders and investors, they may take a different view and start querying how much you are getting paid, particularly because they now have a slice of the company (and more for you might mean less for them). 

So, what your lawyer is saying is essentially that (if you hire him to help you with the company) then he is working for the company and not you. For example, if you want the company to pay you $5000 for some work and the company (made up of you, investors and other shareholders) only want to pay you $1000, the lawyer is saying he will be arguing for the company's side and not yours.

Question 2: The lawyer mentioned something about limited liability. Not sure what this was about. Can you shed some light on this? 

In general, if your company is trading then liability refers to the amount that those who trade with your company can recover from the company. In a start-up, there won't be much that the company owns and so there is not much for creditors to recover if the start-up does not pay or does not comply with its obligations under a contract. 

As for you, as a director of the company, in general terms you will not have any liability for the company (i.e. creditors can't come after you for your personal assets) but you can't act illegally or recklessly when running the company or act in a way where you are just using the company as a shield to deliberately do your bidding whilst knowing full well that if things go wrong then you will simply blame the company. If you as a director deliberately run up massive debts and liabilities in the company's name, which you are aware that the company cannot meet, then use the company as a shield, creditors might be able to go after you and your personal assets. This is a tricky area and so do look into this more but the bare bones are as I have explained. 

You say thanks and that this has been a good starting point and that you will look into the two points more.

Looking forward to our next meeting. 

With kind regards,

Jimmy Desai
Your Legal Coach

​P.S. Don't forget to subscribe and get even more exclusive content and legal insight. As always, this legal talk and all the legal talks are subject to our disclaimer, which you can find here.

​© 2019. Coaching Law Limited. All rights reserved.