I’m against the NDA.  This is common sentiment in the technology sector as well.  Before I dive into my issues with the NDA, let’s distinguish between types of NDA.

A Non-Disclosure Agreement is an agreement that requires a receiving party to not disclose or use certain information that the disclosing party wants to provide. Typically they are provided as a start to business negotiations or as part of a broader agreement.

I don’t take issue with NDAs that protect business information, such as financials, business plans or product launch plans or NDAs that are part of a broader agreement.

I do take issue with stand-alone NDAs that serve only to protect the “next great idea”. An idea (excluding patentable ideas) has no value; execution of an idea has value. Indeed, the same idea can be executed multiple ways with only a single approach achieving success.

Signing an NDA protecting an idea has the potential to limit your company’s own product development in the future as you will be restricted from “directly or indirectly” using the idea. Who is to say that you would not have arrived at the idea yourself, which is especially common in industries where most ideas are slight derivatives of what’s already out there, or what “indirect” use of an idea means. Further, imagine the challenge of creating a company-wide “ideas bank” where you place all ideas presented in NDAs and that you can never use.

A smart company will not use an NDA and, instead, will intelligently disclose the bare minimum level of information necessary for discussions to continue. These smart companies recognize that NDAs are hard to enforce as you face the burden of discovering an alleged breach and establishing that the breach actually involves information protected by the NDA. They also realize that NDAs tend to slow business negotiations.

Instead of the NDA, control what you say.  It’s far is far easier than trying to control what other people have already been told.

All too frequently, Terms of Service, Terms of Use and End User License Agreements (see our post on the differences between each) are found unenforceable when challenged in court because the agreements are not properly implemented.

To simply describe the implementation process (see our post on the technical aspects):

1.  Present the agreement to the user; then
2.  Require the user to affirmatively agree, usually through a click, to the agreement.

In the web context, implementation typically looks like this:

[Check box] I agree to the Startup Company Terms and Conditions (linked to the terms and Conditions)

[Continue] (or similar language, such as “Purchase” etc.)

In the above implementation approach, the user cannot proceed unless they check the box and click the button at the bottom of the page.

In the mobile context, implementation is more challenging given the need to balance legal implementation and user experience.  While the above approach can work, it may not be ideal from a UI/UX perspective.

One mobile approach is to present the agreement to the user, require that they scroll through the agreement and, once scrolled through, the user is presented with the following button at the bottom of the page:

[I agree] to the Terms and Conditions.

Given the differences between each mobile application, agreement implementation on mobile takes many forms and the above approach may not work for you.

Spending the time to determine the most effective way to implement your electronic agreements is vital as the agreements are worthless if found to be unenforceable.

Startup accelerator acceptance season is upon us and those lucky startups are now going through the vetting process that follows acceptance into an accelerator.  In order to simplify the lives of founders and lawyers everywhere, I’ve put together a list of key items that often need to be addressed as part of the accelerator vetting process:

1.  IP Ownership.  Make sure all intellectual property developed relating to your startup has been assigned to the company through separate assignment agreements or as part of employment/independent contractor agreements.  Remember, this is where the value in your startup lies.

2.  Clean up the CAP Table.  This is the time to clean up your CAP table and make sure that everyone you’ve “promised” equity is issued their shares and represented on the CAP table.  There’s nothing worse than calculating the number of shares of the company to issue to the accelerator only to realize that you forgot an intended shareholder – your uncle granted 0.5% (undocumented) for doing company taxes a year ago.  Go in with a clear picture, and proper documentation, of company capitalization.

3.  Lock Down Founders.  The accelerator will want to see that the founders and key persons are tied to the company, whether by an employment or contractor agreement.  If your resources are limited, a reverse vesting agreement for founders should suffice.  In addition to IP, founders are a key startup asset.

4.  Canadian Company?  Determine Cross-Border Structure.  If the accelerator is in the U.S., Canadian startups have the extra steps of determining what Visa will allow them to work in the U.S. while at the accelerator and what cross-border company structure will meet company and accelerator needs.  A discussion of company structure can be found HERE.

If you’re not in an accelerator yet, the above are important considerations to keep in mind for running any company and will make future accelerator vetting a seamless process.

I frequently encounter a misconception that non-voting shares in British Columbia companies do not have a right to vote.  Unfortunately, this is not the case as, in certain circumstances, non-voting shares DO have voting rights.

The obvious circumstances where non-voting shareholders can exercise a right to vote are, for example, alterations to company articles that impact rights held by non-voting shareholders or a company’s decision to amalgamate.

The often forgotten voting right held by all shareholders, including non-voting shareholders, is the annual right to vote on whether the company appoints an auditor and, separately, whether the company produces and publishes annual financial statements.  This vote can be made through a consent resolution (by all shareholders) or through a majority vote at the company’s AGM.   Barring a Shareholders’ Agreement or other voting trust that takes control of how each non-voting share votes, your company will need to seek the approval of non-voting shareholders on an annual basis.

When you sell non-voting shares it is important to understand that these non-voting shareholders do have certain, limited, voting rights to exercise in relation to the company, its structure and direction.  Therein, contrary to the mistaken belief of some founders, the non-voting share class is not entirely passive and can, in fact, take a limited active role in the company.