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What happens to a non disclosure/non compete agreement after we form a partnership/LLC/Corporation

New York, NY |

Does the NDA stay in place and prevent my new partners from competing? Should it be specified in the operating agreement/bylaws? How should this be handled?

Attorney Answers 3


  1. Best answer

    You correctly recognize that these issues are out there and exist; certainly, if something ever goes wrong, attorneys will have to spend time researching and investigating these matters, and if there's room for disagreement, a dispute could get expensive to litigate. I agree with the prior attorneys' answers in that your questions cannot be answered without reviewing the specific documents involved.

    The best advice I can give you is to take this entire situation to a business lawyer who can prepare an appropriate LLC operating agreement and NDA/non-compete. I strongly recommend that you avoid doing this yourself, for two reasons. First, an NDA/non-compete is designed to protect your business against losing its most valuable assets -- customer lists, proprietary methods, and other valuable trade secrets that, if shared with the competition, could cost you your livelihood. Second, the formation of a legal entity, either to hold an already-existing business or to hold a new multiple-owner company, is a highly complex task because of the securities, tax, and corporate issues that can arise. In particular, if you have multiple business partners, the tax situation is quite complex and requires an attorney who understands issues like allocation of profits and losses, capital accounts, "tax matters partner" provisions, and so on. (Most properly-written multiple-member LLC operating agreements have several pages of provisions dealing solely with the tax issues.) Continuing with the assumption that you choose an LLC for your business, you will have to come up with provisions to deal with what happens in the event that someone dies, becomes disabled, or leaves the business, and this overlaps with your question about the NDA. And frequently, these situations require compliance with securities laws too. A good attorney should be able to resolve all these matters relatively inexpensively so that you can go back to running your business.

    Good luck!


  2. It depends on what your previously signed non disclosure agreement provides and/or what you all might agree to that might be different than what was provided.

    PLEASE NOTE: This response is for general purposes only and does not establish an attorney-client relationship, nor is it legal advice. Please consult an attorney for legal advice particular to the circumstances of your situation.


  3. It is quite difficult to answer this question without reviewing the documents. It depends on what is intended and what is provided for in the NDA.

    Sebastien Gaddini is a Business Lawyer, licensed in New York and Paris, who has been working for top tier international law firms. Phone: 646-845-0411. Email: s.gaddini@gaddinistark.com. Website www.gaddinistark.com. This answer is for general purposes only and does not establish an attorney-client relationship.

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