Worried about signing your first contract as a startup? Find a business lawyer, and keep these aspects top of mind.
As an attorney, I could list 100 things to look for when reviewing a contract. But to help you keep things moving, here are seven quick things you should review in every contract to help you protect your interests.
The first thing you need to do is make sure the parties are identified correctly. If you are a business, then make sure you are signing the contract on behalf of the business and not yourself individually. In the contract’s preamble list the business name, entity type, and the state of incorporation. Then sign it in your capacity as an officer or owner.
You should also make sure the obligations of each party are clearly outlined. The more clarity the better. For example, if you are paying a contractor to develop your app, list out specific functions you want, which devices it should work on and the like. And include dates and deadlines if relevant.
Don’t forget to double check all of the payment terms. The contract language should make it easy to understand how much money is due, when that money is due, and what happens to deposits and money owed for services rendered if the contract is terminated (see below).
4. Termination Rights
Before signing a contract, you need to understand the length of the contract term, whether it renews and how, and how you and the other party can get out of the contract. Sometimes you will have an unconditional termination right, other times you might only be able to terminate if the other party is in breach, and still other times, you may have no termination rights. Further, if a party can terminate the contract early, make sure the termination provision outlines the effects of termination (whether any provisions survive, whether one party is obligated to pay the other, etc.).
If your contract deals with the creation of works protectable by intellectual property laws, be sure to outline which party will be deemed the owner of that intellectual property. And even if such works won’t be created, one party may need to license their intellectual property to the other party to allow it to perform its obligations.
Maintaining the confidentiality of your confidential information should be among your top priorities. So you should include a unilateral or mutual non-disclosure provision that clearly defines what constitutes “confidential information,” exceptions to the definition and to the non-disclosure obligation, and how long the non-disclosure obligation will last (including some period of years after the contract is terminated).
7. Miscellaneous Terms
The provisions near the end of the contract (sometimes called the “boilerplate” provisions) should not be ignored. These provisions normally control amendment rights, assignability, governing laws, attorneys fees and more, and they can have a large impact on your rights. So make sure you read them and consider how they may impact your relationship with the other party.
Practical Tip: Find a good business lawyer in your community to help you with your contracts, at least with your important contracts. It is almost always easier and less expensive to hire a business lawyer to help you with your contract than it is to hire a litigation attorney to help you after a dispute arises.
This article is very general in nature and does not constitute legal advice. Readers with legal questions should consult with an attorney prior to making any legal decisions.
Chris Brown is the founder of Venture Legal, a Kansas City law firm serving the entrepreneurial community, and also the founder and president of b.Legal Marketing, a company that builds websites for solo and small law firms. Learn more at venturelegalkc.com and blegalmarketing.com. Or follow him on Twitter @CSBCounsel.