So you have a great idea or a product and want to share confidential information with your prospective business partner.  You should consider what information you will be sharing and make sure you are protected with a well-crafted non-disclosure agreement (also referred to as an NDA, or confidentiality agreement).  Find out more about how we can help you here.

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When do I need to hire a corporate attorney for my business?

Some scenarios are obvious — you should call a criminal or corporate attorney when you’re being investigated by government officials for tax or securities fraud, when an employee is injured on the job or when a customer is injured by one of your products.

But you should also consider hiring a corporate attorney in other situations, like:

• When you are starting a business.
• When you are buying or selling a business.
• When you are considering dissolving your business.
• When you are hiring senior or key employees.
• When you are hiring employees with access to company secrets or confidential information.

When You Probably Need a Business Attorney

Here are a few examples of when you should consider hiring a good business attorney for your large business or small business.

• The members of your LLC, shareholders of your company, or partners of your partnership want to allocate the profits and losses is a special way in the LLC operating agreement, shareholder agreement or partnership agreement.
• The business partners will be contributing capital other than cash to the partnership, company, or LLC — like intellectual property, know-how, or appreciated property.
• In connection with the purchase of a business that has significant potential liabilities like: environmental issues (state and federal environmental laws impose liabilities on landowners in the chain of title, regardless if they caused the contamination); product liability, employee liability (sexual harassment or employee discrimination claims); excessive debt; or special capital calls.

Please note.  If you are a member of a limited liability company, a shareholder in a closely held company, or a partner in a partnership, keep in mind that the company lawyer is representing the company, not you.  There are times when members, shareholders or partners decide to form their business or eventually go separate ways.  The corporate attorney hired for the business has the business as its client and protects the business’ interests.  In the scenario of forming the business, each business partner has its own interest in mind, which may be adverse to the proposed company (for example, if one member is contributing intellectual property to the new business, it may want to have an exit strategy to keep its intellectual property if they part ways).  Or in the event of a “business divorce,” where the remaining members, shareholders or partners are buying out other LLC members, company shareholders or partnership partners, the company lawyer has the company’s best interest in mind, which interest is adverse to the departing business partners.  Business partners, members and shareholders should be represented by their own corporate attorney to avoid conflicts of interest, or at the very least, the business lawyer needs to advise the partners of, and they have to waive in writing, the conflicts of interest.

If you need help with deciding whether you need to hire a business attorney, you should contact a licensed business lawyer for an initial consultation.  As the old saying goes, an ounce of prevention is worth a pound of cure.

A Non-Disclosure Agreement (also known as an NDA or confidentiality agreement) is meant to protect a business from its employees misusing valuable proprietary information.  Often it is a good idea to have a confidentiality agreement in place with each of your employees (regardless of position).  For instance, your receptionist and salesperson might have access to your customer lists, which your company would deem confidential.

You should not use a “form” NDA that you download from the internet or obtained from another business.  Your NDA should be customized for the facts and opportunity at hand and more importantly, for your particular business.  It is important to keep in mind that your company’s confidentiality which is designed for the purpose of a “business-to-business” transaction (where both corporate parties disclose confidential information to each other) won’t suffice for the employer-employee relationship.  You should consult a New York Business Lawyer (or corporate attorney) to prepare your company’s employee confidentiality agreement.

Your employee non-disclosure agreement should be specific as to what is considered “confidential information” and also include things that the employee ought to reasonably know is confidential.  You should also include company trade secrets (see “When Do You Need a Nondisclosure Agreement (NDA)?” for more discussion about Trade Secrets).

Your corporate attorney should set forth for what purposes the employee can use the confidential information and how he or she can use the confidential information (may not be removed from the offices, no reverse engineering, no copying, etc.).  Of course, you need to have provisions specifying what the employee must do with the confidential information when his or her employment ends.

Your company lawyer needs to add “teeth” to the NDA stating that employee indemnifies the company for any breach and that the company may resort to any remedy at law or in equity to enforce its rights in the proprietary information (this means the employee could be sued for monetary damages as well as enjoined from using the information).

Of course, depending on what your business does, an employee confidentiality agreement may be part of a more encompassing agreement that includes provisions limiting the competitive activities of an employee when he or she leaves your company (sometimes referred to as a “non-compete agreement” or “forfeiture for competition agreement”) and requiring the employee to disclose prior inventions (and promise to either not include the prior invention in what they create for your company and/or grant your company a royalty free license to otherwise use the prior inventions).

Lastly, like protecting trade secrets, it is not enough to merely have non-disclosure agreements (confidentiality agreements) in place — your company needs to implement policies and procedures to maintain the secrecy of your company’s confidential information.

I recommend that you consult with a New York Business Lawyer to prepare your company’s employee confidentiality agreement, “non-compete agreement” or “forfeiture for competition agreement” to help ensure the best ways to protect your company’s confidential information and competitive edge.

There are plenty of reasons to have an NDA.  I will limit this post to discussion of using an NDA between technology businesses in an arms-length transaction. More often than not, for whatever reason, whenever there is a technology related transaction at hand, the parties want to sign nondisclosure agreements right away.   On one hand, it is very advantageous to make sure your confidential information and trade secrets are secure.  On the other hand, I don’t advise exchanging confidential information with strangers right away.  Regardless of whether there is a signed NDA in place, it is best to keep your secrets to yourself until your interest in the opportunity at hand is piqued to the point where you believe the potential relationship might get serious.

Up until that point, a technology company can demonstrate its capabilities without necessarily disclosing the “secret sauce” of “how” it does it (note, if the capabilities are is as much a secret as “how” it does it, then this may not apply).

You should not sign a “form” NDA. Each NDA should be customized for the facts and opportunity at hand. You should call us (or another New York Business Lawyer or corporate attorney), highly experienced in business and technology matters to review, negotiate and revise any form NDA presented to you to sign.

A Nondisclosure Agreement is more than a commitment to keep your confidential information secret — you also don’t want the other party to use your confidential information for their own benefit.  You want to protect your ideas with the NDA.  As the old saying goes (absent a promise to keep a secret), “ideas are as free as the wind.”  Copyrights can protect your “expressions” of an idea (like music, a novel, software code, or a photograph or painting, among other things); and a patent can protect your idea that is used to create a nonobvious and useful invention.  But an idea is free to copy – so you need to protect them as a secret.  This means that other party should never be able to use your idea freely; a well drafted NDA should limit the purposes for which the confidential information may be used.

Trade Secrets.  A trade secret is an idea that derives independent economic value from not being generally known to the public or readily ascertainable by proper means by third parties who could obtain economic value from its disclosure.   You can’t just say that some information about your business is a trade secret.  You have to take efforts to keep it secret (like keeping the formula to Coke in a safe and have employees sign NDA’s).   You should also take care in the NDA to distinguish the treatment of confidential information and trade secrets.  This is important because most NDAs have an expiration date after which a party is free to reveal the confidential information (e.g., either an express term or a certain period of time following the date of disclosure).  You never want an expiration date with respect to the obligation of keeping a trade secret confidential.  You also never want to have too long of a term to keep regular confidential information secret (especially in the world of technology where the information could be obsolete in a couple of years).

Having said this, if you’re revealing a trade secret, which you should do in the rarest of occasions, the obligation to maintain the secret should be an absolute must, and in all events, last forever.  This is because once an obligation to maintain the information confidential is gone, then it no longer can be deemed a trade secret (the toothpaste is out of the tube and cannot be put back).  Courts will not protect your right in that trade secret after you’ve consented to it being publicly revealed.

**This post is for informational purposes only, For legal advice contact a business lawyer**