Forums: Discussions for entrepreneurs and small business.

While I am not an attorney - I have been delaing with the NDA situation for a number of years.

I agree that the execution of one is an indication of intent. However, what is important to remember is that having an NDA -doesn`t automatically mean you are protecting your valuable intellectual property and it doesn`t cover "everything" you say and do.

Generally, to be effective, the disclosing party must (clearly) identify the "secrets" that are covered.

Here is how this works.

Document 1 - your term sheet.  You disclose only as much to get interest.  You have to decide who you want to work with and who you want to trust.  Keep in mind some investors may also be your exit strategy, so an investor who also has market presence may not be a bad thing. 

Document 2 - confidentiality agreement.  This is a prerequisite to your private placement memorandum.  I have never seen a PPM offered without one signed. 

Document 3 - Private Placement Memorandum.  The securities laws say you must disclose all material information to your investors - hence the requirement for number 2. 

There it is.  Call or write if you have any questions.

Best of luck

Mitchell

Investors or Members?  An LLC can have many membership levels, and do call them ‘members’ not ‘investors’ unless your company is actually underwritten and issuing pubic stocks.  It is illegal for an non-public company to sell shares to the general public.

I think a membership agreement can cover most worries and concerns about intellectual property.  If the potential member is looking for a “Money-in/Money-out” sort of deal, then they probably really want to work with a stock exchange instead.  Potential members of any start-up LLC have to understand that they may not see any return for years, if ever.  It is a high risk on their part, yet if they believe in your company and you then getting their investment should be no problem. You can also structure your membership to be non-voting or voting and your LLC can be managed by a manager or by the members. 

I also recommend any startup business who is looking for investors to read up on the SEC laws.

Best of luck with your company

Ideas are generally free...execution is where you`ll win.  If you can prove you can execute then investors or partners will not try to build your business.  I doubt any investor or competitor will sign an NDA.  But it`s always worth a shot.