How To Set Up Contracts And Agreements

How To Set Up Contracts And Agreements

Morvareed Salehpour

Devin Miller

The Inventive Journey

Podcast for Entrepreneurs

1/21/2021

How To Set Up Contracts And Agreements

I think it is important to know this is not a one and done. Legal compliance is a continuing thing that will rise with your business. As you scale and grow there will be new issues that will come up. There will be new opportunities to kind of enter into strategic partnerships and those will bring there own separate issues around all of this and what kind of agreement you want to engage with a potential business partner to create a new offering or to pitch a joint offering. Those will all involve rights and obligations about intellectual property and liability. So those need to be negotiated properly.

 


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it's important no this is not like a one and done right it's a legal compliance this is a continuing thing that'll arise with your business as you scale and grow there'll be new issues that come up there'll be new opportunities to kind of you know enter into strategic partnerships and those will bring their own separate issues around all of this and what kind of agreement you want to engage with the potential business partner to create like a new offering or to kind of pitch maybe a joint offering or something like that and those will all involve kind of rights and obligations about intellectual property and again liability so those need to be negotiated properly [Music] hey everyone this is devin miller here with another episode of the inventive journey i'm your host evan miller the serial entrepreneur that has built several uh startups and uh into seven and eight figure businesses as well as the founder and ceo of miller ip law where we help startups and small businesses with their patents and trademarks and today we have another great expert episode um and it is and i'm i'm already worried i'm going to mess up her nate but she told me before and i asked her and she i'm still worried more varied i know i killed it but that's as close as i can get and she'll be able to correct it um but she'll she's going to talk a little bit about i think you know a person after my own heart lawyer a lot of law stuff we're going to go over a little bit about things that businesses meet or need to know with regards to contracts and agreements and we'll try and make it as interesting as we can i know lawyers are typically boring but we'll make it interesting you know this can be everything from contracts to tech agreements to how you set up things with founders and vendors and employees and referrals and you know some of the things that people don't oftentimes think about enough within agreements until you're already facing those issues or they're too late so if that much is of an introduction welcome on to the podcast hi devin thanks for having me so yeah i'm more of reid solopor and i am a business and tackler so i'm happy to be here and you know i work with startups entrepreneurs and businesses have over a decade of experience and work with them to make sure that they set up their businesses the right way and have the right agreements with founders with consultants with vendors with strategic partners anyone they're transacting with so and i think that's great so now give us just a two minute you know kind of background you know education how long you've been doing this why you're why you know what you're talking about and why people should trust you and then we'll get into the a little bit more of the the expertise portion sure so i you know wanted to be a lawyer since i was eight worked towards that went to you know law school did the big firm thing so i worked with uh you know over a thousand attorneys international reach working with 400 companies i worked on the madoff ponzi scheme recovery team while i was in law so lots of interesting work i did that for about eight years and then about three and a half years ago i left the big law firm corporate world and launched my own law practice uh working with you know small and mid-sized businesses startups and entrepreneurs to help them with that same level of expertise but at you know being a small business much uh better rates and i'm able to really both provide them big law kind of level of experience as well as a personal relationship and a personal kind of knowledge of what it's like being an entrepreneur since i'm an entrepreneur business owner as well so i have personal hand experience about the different considerations to go into play no and i think that's that's a great background i think it sets the stage up well so now let's dive into a bit on the the expertise portion or the x or that that part of the episode so we have you know typically you know in my experience and you know as a lawyer but on a different area of expertise you know people often times at least from my perspective let's say take patents and trademarks and too often they you know they don't think about it until it's kind of an oh crap moment they get that cease and assist letter or they somebody else takes their trademark or comes out with a similar patent and then they're saying oh no what do i do and then they come to my office and you know by that time it's oftentimes too late or you're having it's a lot more time money and expense to try and do it it's a less of an outcome and so my recommendation is always even if you can't if you even if it's too early it's always easier to go and at least get an idea or a strategy or a road map so to speak when you should be thinking about things so that you're approaching them at the right time and you're not getting to that kind of oh crap moment but you know with that you know one of the things that i think that people in addition to patents and trademarks often overlook is agreements and they'll sometimes they won't do any agreements which certainly causes problems or they'll go online and they'll find out you know they'll type in tech you know founders founders agreement and they'll find something that this looks good enough and they copy and paste it both of them sign it and they never look at it again until somebody's suing the other person i assume that's not a good idea is that my subject correct yes definitely so that is often a way that businesses get into really bad trouble and a lot of disputes arise so it's important to kind of have those tailored contracts in place from the very beginning and it is very i've seen a lot of situations where people have either like you said entered into some kind of oral arrangement have just cut and paste something that they found online or you know if you're dealing with a vendor or partner someone has put together their agreement and then just given to you and you've signed without reviewing and negotiating anything and these are all very problematic um there are situations where founder disputes are common people are pushed out of their companies and they don't have the ability they have less ability to kind of protect themselves because the right agreements aren't in place there uh there are situations where ip rights are not addressed correctly in these agreements so that creates issues about whether the company owns certain ip for example with consultants uh with vendors like there's issues with all did we know what's happening with the data that's being protected and transferred so yeah it's a whole host of liabilities that can arise and i've even talked to you know like for example a business last year who had um they had been building out their business their startup they had invested you know they had spoken spent money on consultants and they had basically built out even a prototype but their business model when they spoke to me was illegal so they had actually spent this time and money whoops working out a business that had nowhere to go and that's not a situation you want to be in so i was telling like come to me as early as possible like we can go through your business plan i can kind of give you feedback and we can make sure that you are actually growing a real business no and i think that's certainly important and i think that that's oftentimes yeah this is probably fine but now i'm going to ask you the hard question and i get it all the time from startups and small business as well which is it's a startup or a small business you always have more things to spend money on the time to spend them right or than money to spend right so you're always trying to figure out where is where do i spend the money the limited money i often have because you know if you're a big business you have a big income you'll have in-house counsel you'll have attorneys that you can go put on retainer and that you know that works out fine but if you're starting out you just don't have enough money so how do you balance that as a startup to say hey we need these agreements but i'm worried that i can't afford an attorney or i can't afford their rates or you know even worse they're saying hey i'll go in and they'll spend you know five hours consulting and then they'll come out and they'll charge me a thousand or two thousand bucks and they'll just tell me i don't need you know that it's i'm too early or i don't need it so how do you kind of weigh as a startup or small business that need to have these documents with the lack of funds or you know limited funds not saying they don't have any funds but limited funds how do you kind of make that balance or what are your thoughts yeah i mean well first of all i i doubt there's ever going to be a situation where someone's going to say you don't you don't need any of these agreements you're good like no you definitely and the way it is you need to start thinking about both law and tax are things that you need as a new business to be budgeting for so these are things you need to prioritize in your budget and then you know for example i'll work with you know clients who are you know new startups we can create a priority of things that need to be done these are all these are all things going to be done you know we may not have to do them all straightaway month one prioritize you know create a list of one to ten of the things we need to do we'll do one and two that are immediate most important we'll do them this month and then you know four months down the line we'll revisit and do three and four so that's a way that you can kind of spread out the cost of what needs to be done but you're actually getting things done and create you know working on creating a real business scaling it and setting it up for investment because no investor is going to want to invest in a business that doesn't have agreements so now taking that yeah taking that as almost initial jumping off point so let's say you have those top 10 priorities and i know every business is a bit different but if you're to say generally and i know attorneys hate to talk in generalities i'm going to force you to anyway generally what would be you know the top one or two things if they could only start on one or two things because it's better to start and at least get some things in place than to have nothing in place so what would be the typical startup or small business what would be the first couple things that they should start to look at or start to consider yeah i mean there are the key agreements to their business that they need to be those are things that they need to actually invest in so you know if they're very early setting up the founder agreement that's going to be important so now i'm i'm already going to interrupt so what is a founder agreement or what you know people don't know what that is you know what's an easy understanding explanation of what a founder agreement is yeah it'll the specific structure of it will depend on but basically it's in general the agreement that is between all the people who are the actual founders of the business and it includes the rights and obligations of everyone and how they're involved with the business how you know what they have to do what rights they have what happens if someone needs to be leave you know what does that need to be negotiated and rosie under agreement um in addition to that the other kind of important documents that any startup needs to be doing is for example this is a key document is whatever agreement that they'll be using with their customer or client whether it be uh b2b make sure that agreement for example i deal with sas companies getting that sas agreement put into place and strong that's important it's something you're going to be using over and over that's an important investment um similarly if you're a b2c get that terms of service set up strongly that's important the privacy policy is important so i'm going to give a couple so just for people that don't know or all the acronyms which i i you know sas is software as a service so that would be hey if you're basically selling as a service your software right you have a platform you have a subscription model something of that nature you'll want to have that agreement in place and then b2b is business to business and so that's more if you're working your businesses your clients of your business as other businesses you'll have one company you know one type of agreement if you're more of a b2c which is a business to consumer then that'll be different so you know b to b b to c would be more of you know your netflix or you're you know something of that nature to where you're streaming and that your end customer but even netflix also has b2b agreements which is all the networks where they get all the content and all that and movies and that those are the b2b agreements and so there's always a lot of times there's more than one type of agreement so you know so you take so we walked through a few of them founders agreement and that one kind of outlines this is how a founders are set up this is how your decision making is going this is how you're going to be able to um be able to you know if you have a type voter you how do you spend your money or how you make your money if you get dividends and how all that is laid out and it's usually you write it you put it in a drawer and nobody looks at it again until you have a dispute or an argument but that's when you need it right that's when you're going to say okay we we don't we no longer agree we want to dissolve the company or somebody wants out or something isn't going right that's when you pull it out right so now so you let's say we got the perfect founders agreement and i don't know that there is a perfect agreement but a really good founders agreement we get our um we get our you know the different agreements in place for terms of service for your b2b your b2c whichever your model is so you have those in place so now you know what is it let's say now we have all those in place and we start to hire we start to hire whether it's independent contractors we have vendors we have employees what are some things to consider how do you start to figure out the different types of agreements you need as you start to grow and expand yeah i mean the one of the ways a lot of businesses initially scale is consultants so those consultant agreements are another important thing that you need to get a template put together and that's something again that it's important investment you're going to be using over and over um as employees get those employment agreement templates kind of put in place that's again something that you're going to over and over or you know depend kind of you know kind of figure out if and what that those are kind of issues with that side and then as a tech business you are going to have multiple vendors you you know tech businesses are connected to the cloud they deal with data uh so these are important you're going to be kind of facing these from the very beginning so it's important particularly if you're a high-tech space that's dealing with data that you are negotiating these vendor agreements uh strongly so that you are only taking on uh appropriate amounts of liability and that you're having your vendor cover the appropriate amount of risk that they need to cover as they uh kind of perform the contracts because you ultimately are going to be responsible for things that go wrong with your customers no i think that's certainly helpful and insightful so now let's break it down just a little bit so we kind of talked about three different types agreements which is one is a vendor agreement one is an employee employee agreement and one is an independent contract agreement all three are three different types of agreements and cover different things but you know if you to simplify down so everybody that's not a lawyer that we are talking back and forth what are those type of agreements or really what is a nugget or what are you trying to accomplish with each one of those agreements yeah i mean with any of these you're really trying to protect your business interests and limit your legal risk so with for example the vendor agreement you're wanting to make sure that what you are ship basically you're going to have everything's going to be secured right it's going to be side you're not going to have cyber security issues you're not going to have data breach data privacy issues that's all very important with any of these vendors and those are things that are why it's so important to negotiate those carefully because you're ultimately going to be responsible for data breaches cyber security issues to your customers so you need to make sure your vendors are appropriately kind of obligated and have their feet to the fire there consultants it's important with consultants employee it's very important to protect the actual assets of your business which for any tech business and many other businesses including for example media entertainment it's intellectual property intellectual property is the most important asset and it doesn't stop as just you know registering this getting the patent getting the trademark getting the copyright you actually have to protect it in your day-to-day transactions with different parties that you are engaging with and that means you need appropriate consulting agreements in place that have appropriate ip and confidentiality provisions single employees same with vendors these are just ways because if you register something and then you start really like sharing it out and not keeping it confidential well you're gonna have issues and keep in mind there is a whole scope of uh information that is not technically registered able to be registered as a patent or trademark it's trades right so the only way you're going to you know preserve trade secrets is by contracts and by you know policies within the company no so now what and i think that was a great explanation breaking it down a bit and if i were to kind of maybe add on to that in my mind vendor agreements is vendors are piece basically people that you're either providing something to or they're providing it to you and outlining what that relationship is when the deliverables are how you're going to provide the service to them customer service how quickly you're going to do it what happens if things don't go right how you're going to remedy issues those are all the going to it in employee agreements you're really saying you know what does the employee do if they create something is it owned by the company or them as an individual what about non-competes can they go out and take the all the ideas of your business and start their own business as a competitor or do they have to wait for so long and that even gets more messy with all the state laws especially if you're in california sorry dot competes are hard and then you know independent contractor agreements and that one's one that people often think oh i'll just go pay an independent contractor they'll do some work for me but then you get into ownership issues right of who owns what so is independent contractor make something for you do they now own it do you own it do you you know do you have co-ownership or how does that work and that can often get messy so one thing that i i always found and i would you i'm guessing you're probably saying is attorneys always love to share war stories so without breaking any attorney or current turning client confidentiality by any means you know i'll share maybe one of my best war stories and maybe you can share one of yours uh think something that went wrong as a way for people to learn what they shouldn't do so i'll give you a recent example and again i'll generalize it so we don't release anything on the the client side we had a client or a potential client we talked to that they had an employee that left the company right they you know happens all the time employees come they go people get fired people you know leave they have other opportunities and they didn't ever think about it it was on a trademark side and they basically looked at it and you know who owns a trademark and so now is like if the employee goes out and ha has a you know their employee their ex-employee goes out and starts a similar company and have you registered your trademarks have you not do you own them who if you don't own them does the employee if they came up with them and it came raised all these different questions as to you know i've got an employee that now just left the company what do i have an agreement in place or do they have a non-compete and it was kind of now having to sift through what level protection they had and if they'd already had that in place it makes it a lot easier conversation of okay this is how long they can't compete with this who owns this and what do they have the rights to and enables to give you that so there's my generalized um recent horror story but maybe what are some of the other horror stories is to give people an idea of what they're trying to avoid yeah i mean i've done things like that where we mentioned you know former employee you know i've seen them take hard it's definitely a big issue i mean some other kind of issues that i've kind of seen is uh you know recently kind of dealing with some kind of open source licensing for a client and you know there's definitely a lot of issues there as well and you need you need to kind of be aware what you're actually putting into your software and what ip lights are kind of involved with that and then how you are kind of passing on that uh you know kind of new software and whether you you don't want to be attached to any of these terms in open source licensing where there are basically viral terms that'll make proprietary software open source so these are very careful so you actually have to have a policy and procedure around this and be doing that due diligence um when you are kind of creating this new software and then transacting with it no and and they're though the hard thing i always think you know you know and i've been on both sides so i've done startups in small business as well as running my own law firm and it becomes a bit overwhelming and you know almost to the point we started out as you don't have enough money that you can't just go hire an attorney full-time and you know then you're always worried you know some some attorneys are awesome and great another time you just feel like they're running up the clock and so you're always worried okay how are we gonna afford this we've got now we've just gone over you know founders agreements vendors agreements employees agreements you know independent contractors agreements what are those founding documents and that just that's almost a tip of the iceberg so you know we walked through kind of you know i like the phased approach of let's you know let's start somewhere let's figure out when you're going to found your business then once you found your business you have that agreement in place then what what is your next steps is it going to be putting up a website let's look at terms of service are you going to start to sell it or hire on more employees let's do that so with all that phased approach now let's say we've got we've got everything up and going we've got the initial agreements in place and we you know kind of have at least that roadmap and outlined and we work through that any other things that people should be considering on an ongoing basis or anything else that you would think about that we haven't gone over that would be of note or people should think about as they continue to grow their business yeah i think it's important to know this is not like a one and done right it's a legal compliance this is a continuing thing that will arise with your business as you scale and grow there will be new issues that come up there will be new opportunities to kind of you know enter into strategic partnerships and those will bring their own separate issues around all of this and what kind of agreement you want to engage with the potential business partner to create like a new offering or to kind of pitch maybe a joint offering or something like that and those will all involve kind of rights and obligations about intellectual property and again liability so those need to be negotiated properly additionally while these templates are good you're getting these templates in place it's something you use with your clients but as particularly if you're having you know b2b clients and you're dealing with bigger businesses you're going to get like sometimes you'll get pushed back or someone will want to change something significant and that's the time where you need to realize hey i'm kind of in over my head you know negotiating these kind of data rights and privacy rights like these intellectual rights i need to bring in a lawyer to kind of help me navigate this and make sure that i'm not agreeing with something that kind of basically undoes the key provisions of my agreement whether it be those whether it be indemnities or liabilities those are key provisions and all of these transactions with vendors and with um b2b clients so it's important to realize when you actually need to bring an expert to help you no i think that's that's a great point and you know because businesses always are evolving they're always getting you know changing they're be they're growing up you know if you start out as a startup you have you and maybe your co-founder and then you hire on a couple more people and then before you know it and a few years down the road you have you know 20 employees or 100 employees you've got all these clients and what you did when you're a founder or co-founder back in the day probably doesn't match with what you're doing today and you do need to at least consider how your business evolved and then adapt your agreements and what you have in place to or to match what you're doing today so we you know i'm sure we could go on and people would find it maybe find an interesting or maybe find it really boring because we've already talked to half an hour but i think it's been interesting at least from my end but now as if we were to say you know we've got all these things we can't cover every type of agreement all today if people want to reach out to you they want to find out more they want help with the agreements they want to get some strategy get that road map they any any or all the above kind of what's the best way to reach out to you get more information contact you and get things going sure um i'm on linkedin with my name or very softball and i um my website is my last name sauberlaw.com and my email is my first initial last name at southpawatnakot so and soliport that's all for law.com happy to talk to anyone who needs assistance with contracts and transactions all right well and i definitely i said i i always tell people it's never too early to talk to attorney and i'm always talk with them on the patents and trademarks i think that definitely also applies to our business agreements and getting everything set up so i'd encourage everybody to reach out earlier than later you can avoid the horror stories if you even even if you don't need it get it or get a road map in place and so you know what or how to attack things and approach things and certainly reach out to you well thank you for coming on the podcast it's been a pleasure it's been fun now for all those listeners if you're either an expert and you want to or you have some expertise it would be helpful to startups and small businesses to share or you just want to come on as a founder co-found co-founder and share your journey feel free to go and apply to be a guest on the podcast at inventivejourneyguest.com if you're a listener and you want to make sure you get all the notifications of all the new episodes as they come out make sure to click subscribe and last but not least if you ever need help with patents and trademarks feel free to reach out to us at millerip law well thank you again for coming on it's been a pleasure has been fun good luck helping all the startups and the small businesses to make sure that they don't mess up any of their contracts and wish you the best of luck thank you for having me devon it's been a great [Music] conversation English (auto-generated)

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