Legal Services
Disclaimer -- this section contains a variety of views on legal service requirements for a technology company. The views should not be considered professional legal advice. The reader is encouraged to seek professional legal advice as appropriate and only use the views contained below as guidelines in the context of operating a technology business.
The need to engage legal services in the operation of a technology business tends to be seen by inexperienced CEOs as an impediment to the operation of the business. It is often called a drag on sales momentum and an unwanted cost often charged against sales profits. Nonetheless, prudence does require an experienced and qualified review of relevant business documents, often a process that is managed within the Finance department. Small companies tend to outsource most legal functions as it's uncommon to be able to justify a permanent full-time legal staff member qualified to do contract, corporate, tax and employment law all in one individual. Occasionally the founding CEO handles all legal services to reduce the cost and business impediment, but the risks this approach carries can be very detrimental to the business long term if errors are made in relevant contracts.
Keep in the mind that the job of most lawyers is to help you manage risk and therefore their recommendations are often designed to fall on a very conservative framework -- it's up to you to decide how to handle the advice given and make sure you are keeping the Board and other relevant parties informed if you stray away from that advice. Establishing some risk guidelines jointly with the Board is a good way to approach this. In this section we'll look at a variety of legal services typically required in a technology business and some of the methods you may want to use to handle managing them so that it represents as small a business impediment as possible.
NDA (Non-Disclosure Agreement - Confidentiality Documents)
The NDA document tends to be on of the most frequent documents used in any technology business, especially at the start of any new business discussion with a prospective customer or partner. The operational diligence to actually get one signed as a precursor to a confidential business discussion is not easy to instill in corporate culture. It can be viewed as a business impediment. The team too easily dismisses the importance of formalities like signing NDAs, especially inexperienced team members, the excitement of having the attention of the prospect wins their thinking. The CEO has to espouse the view that many things about a business are confidential, especially if competitors are involved in the market - obtaining signed NDAs is critical to protecting innovation against unwanted disclosures (it's also important a pile of signed NDA's exist during acquisition due diligence).
The most significant impediment to getting an NDA signed is the length and complexity of the document itself. The more the document reflects fairness, simplicity and a 2-way business relationship, the more likely it is to be signed without much delay by the other party.
Some simple guidelines include:
- Define signing authority -- only a select number of responsible team members should be able to represent the Company by signing or counter-signing documents. Nonetheless, you can expand the list of who can sign if the document in question is a standard company document (like an NDA) and no changes are being made. Any time changes are made, an approval process should be followed and ideally the CFO or CEO should be the one signing to make sure the changes are acceptable to the Company (legal council may also need to be involved depending on which terms and conditions change).
- The terms and conditions should be two-way -- some lawyers are asked to create documents to protect the Company alone without worrying about the other party. These tend to be difficult to get signed as it infers only one party has anything confidential to communicate, which is rarely the case. Two-way documents, where both parties are protected are easier to agree to and actually provide better protection overall.
- The NDA document should be standardized -- you should not encourage or accept any changes to the template used. If the document is a proper 2-way NDA, most parties will sign it as is. Larger companies tend to prefer their NDA versus yours -- should not be an issue if they are also using a standard 2-way NDA, which most do. If you are determined to always get your document signed, thereby needing to engage legal services to make modifications requested by the other party, you'll quickly have a pile of custom NDA documents each with their own terms and conditions to manage. Buyers hate coming across this in an acquisition scenario as they need to read, process, catalog and understand each NDA and take on the long term risk issues as a consideration to the transaction. One document fits all is a better approach.
- Make sure your contact has signing authority - Sales should be explicit in confirming that the person they are selling to has signing authority to bind the other company. It's not uncommon that the first contact with a new prospect does not have authority to bind the company by signing a legal document. As such, you would not really have any recourse if a break of confidentiality terms occur.
The following is an example NDA. If you intend to use this document, please have it reviewed by proper legal council to make sure it suits the needs of your business. Sample NDA