Top 10 legal tips for entrepreneurs
I was recently a mentor in the French-American Chamber of Commerce’s annual start-up workshop, the Business Booster. In addition to topics such as positioning (hosted by yours truly), marketing, finance and the all-important VC presentation, there was an incredibly useful session on legal matters, led by Eve Chaurand Fraser of IAC Search and Media and Francois Laugier of law firm RMKB. Below are my layperson’s notes from the session on how to avoid some of the more common mistakes made by entrepreneurs. It’s particularly relevant for IT start-ups, but is also applicable to most businesses.
Blatant plug: If you’re a budding entrepreneur in the Bay Area, check out the next Business Booster program, starting in July next year. You’ll get access to and advice from an amazing group of Silicon Valley executives, experts and entrepreneurs (and me). And you don’t have to be French ☺
- No collaboration without contract
Never collaborate with anyone or hire an independent contractor without a written contract (no matter how rudimentary). Be sure to describe in detail the deliverables and tie payments directly to deliverables, not according to a timeline. The last thing you want is for a deliverable to slip, but you’re still locked into paying for it in February.
- Make sure you own the IP
Always make contractors sign an invention assignment and confidentiality agreement.
- Know who you’re dealing with
Is that software engineer from a company? An independent contractor? Where is he/she based? It could make a big difference in the sad event of a legal dispute (see # 5).
- On whose behalf?
When signing a contract, make sure it is clear that you are doing so on behalf of your business entity, not in your own name. And the same goes for the other party.
- Protect your IP
Make sure that your most fundamental IP development is performed by someone upon whom you can enforce a contract. Know that it can be extremely difficult and/or costly (if at all possible) to enforce a contract if that person is located overseas.
- Always read every word of a contract
We’ve all done it – just signed a contract without bothering to read any of it, let alone the small print. But don’t! Always always read a contract – whether you have a lawyer or not – and do not sign anything you don’t fully understand. “I didn’t read it” or “I didn’t understand it” will almost never protect you. Here’s a handy tip: if you receive contracts that are overwhelming, try returning them and asking for a two-page agreement. You’ll be surprised how often this works, even with large companies. It has also been known for companies to sneak onerous provisions into seemingly standard agreements like NDAs. You have been warned!
- Make sure every contract has an “out” clause
No matter how excited you are about that new client, you never know when you might want out, so you should always be able to terminate the contract under terms that are acceptable to you. A termination for convenience (with notice) is the ideal provision.
- Actuals, not percentages
Never promise a percentage of your company’s capital, or there will almost always be ambiguity over the number of shares that serve as the basis for the percentage. If and when your company becomes successful, that ambiguity could result in a costly dispute. Always commit to a number of shares, not a percentage.
- Missing appendix
Make sure you have negotiated the “schedules” or “appendices” to a contract before you sign it. Too many times, contracts get signed with their essential terms missing, as the contract refers to terms contained in schedules or appendices that are nowhere to be found.
- Going global
If you’re not quite ready for a physical presence overseas, you can at least make a start by registering trademarks, patents and copyrights in your target foreign locations.