Posts tagged Legal
Unfortunately the legal stuff is just part of the world we live in. If it’s not patents, it’s privacy laws (which aren’t a bad thing) or liability. Unless you have a lawyer in your friends or family for a bootstrapped startup or micro enterprise there usually isn’t much of an option to have your stuff drafted fresh.
We all know we need some legal agreements, in my Tools and Services to get your Business Started post I went over some of the tools and services we used to launch my company. Resgrid is a cloud service company providing logistics and management tools to first responder organizations like volunteer fire, career fire, EMS, search and rescue, public safety, disaster relief organizations, etc. It was founded in 2012 by myself and Jason Jarrett (staxmanade).
In that blog post I mentioned LawDepot. It’s a service we still use, the price is great and they have a good number of legal document generation tools. But they don’t cover everything, so we needed to look somewhere else for those.
As with any legal document you should always run them by your lawyer, it sucks, but there could easily be provisions in your local jurisdiction that can invalidate portions of the document.
WordPress: The great peeps at Automattic have put the WordPress Terms of Service out for your to use and licensed it under CC-BY-SA 3.0. You will have to do a lot of pruning with the WordPress terms, unless you a lot of user generated content. They also have their named programs in there that you will also have to prune and alter.
Hosted Privacy Polices
Dangers of using someone else’s terms or policies
- Outdated: Any agreement you choose can be outdated. Laws constantly change (politicians love adding new laws) and if you don’t stay on top of the legal landscape you can open yourself up to liability.
- Bad Terms: If your not a lawyer it can be very difficult to read these agreements. Are they binding your company, or you, to a term that you cannot meet? For example damages up to a certain dollar amount, or binding arbitration (you better figure out how to get an arbitrator just in case).
As with everything in this day and age the legal landscape is tilted to favor the large companies with deep pockets and the public. Small companies without a lot of money are a serious disadvantage to being pushed around by larger companies or lawyers looking for some easy wins. So use the generated agreements when you have to, then upgrade to a custom drafted one. I would recommend that you leverage someone else’s CC-BY-SA agreements and update it, helping out others just starting out and pay it forward.
One of the first things you should do for your startup, besides coming up with an idea, coming up with a sweet name, trying to drag your friends and family on board, begging for money from everyone, developing a awesome logo, wait what was I talking about again?. Somewhere in between all the fun and cool things you get to do starting up your company you have to handle some very important work. Having a friend or family member that’s an attorney helps out a lot, but most of us don’t have that luxury.
These are some lessons I learned when I founded Resgrid, a cloud service for first responder originations, with my partner staxmanade. Because Resgrid is positioned to support volunteer and career fire departments, emergency medical services, search and rescue and other front line emergency services we wanted to ensure that all of our bases we covered.
First off, what type of company will you form? An LLC? S-Corp? C-Corp? Partnership? Inc. has a very old but decent article on the subject (http://www.inc.com/articles/2000/06/19438.html) and Nationwide Inc has one (http://www.nationwide-incorporators.com/get-information/article-whats-best-for-me.php).
From my experience the best bang for your buck with the lowest friction is an LLC. You get pass through on your taxes, liability protection and very little overhead work compared to an Inc. But I’m not a lawyer so always double check your particular circumstances with some form of counsel to ensure there aren’t any issues. This is an important first step to protecting yourself, and your partners and other stakeholders in the startup. You need to pay attention to all the work you need to do for the entity you want to form, for example for an Inc you need to have shareholder and director meetings, every year and keep notes of everything. If you don’t follow the rules for your particular entity and something goes down a court could say that the company is just a shell and liability rests on you.
In part when forming your company have very clear, and fair, distribution of ownership, responsibilities, costs and liabilities. Nothing will derail your startup faster then people who feel that they have been shafted, slighted, cut out of money or unfair distribution of work. Ensure there is a clear understanding on how decisions are made, who has final say (there always has to be a final say) and who, or whom, will run point on legal/official matters (in an LLC this would be your Managing Member, the ones that can bind the company to legal contracts, open accounts, etc).
When we founded Resgrid we knew it was going to be disruptive. In a market with antiquated software and hardware, slowly updated (and adopted) and technology adoption and high prices (there is a thing called “the fire service premium”, our low cost, cutting edge technology and frequently updated model was going to have a little shock associated with it, from customers and competitors. We didn’t realize how much until a few months after putting our site online we got a patent infringement letter from a competitor. Although after looking at the patent’s we were clearly not infringing this was something we had to handle. I won’t mention the competitor, seeming they have been very cordial and I wish them the best.
So moral of the story, also try and line up a law firm or lawyer you can bounce stuff off of either ad-hoc or via a retainer. One that I recommend is Hawley Troxell, where Brad Frazer works, Brad is an amazing speaker and very knowledgeable. In this area our options are pretty limited so we had to look outside a little to find someone with the right mix of knowledge, experience and skills. This wasn’t in our top priority list and it bit us a little, so I recommend at least getting your ducks in a row, know who to contact that has the skills and knowledge in your area of need.
Another thing that is so boring but a must, is get your accounting straight right away. All members should have access to the books and be able to review them. Again, be open and honest with all members on the books and when will people get paid and how much. In the startup phase people most likely won’t be earning much of any money, unless you got some form of funding, even so make sure all members are clear and in the know. A startup called Buffer recently revealed all their employee’s salaries and the formula of how they got them. So if you’re balking at transparency in your ownership then be prepared to deal with some issues. Choose an accounting software that meets your needs, and use it! We choose Outright, now GoDaddy Online Bookkeeping (yuck!) because it was free for the most part and meet our needs. We do pay a yearly free for access to the Tax Reporting forms.
Get a good CPA for your startup and encourage all your members to get good CPA’s as well. Because we are an LLC our profit and loss passes through to all the members of the LLC. This complicates your taxes, so be prepared and ensure your members are prepared.
Covering those three things (Entity Formation, Legal Advisor and good accounting/CPA’s) will give you a foundation for operating properly and legally. It also give’s you a great base for when you need to do it again, you have your “go-to’s” to get things up and running quickly. Don’t forsake the boring part of starting up a company, it could turn out to be the most important element at a critical junction.
An End User License Agreement or Software Agreement is a legal agreement that will accompany your software when it is distributed on the Internet. Recently I’ve been spending a fair amount of time on EULA’s and the topics come up a few times. Although I think their legality is still in question, as I don’t believe they have been thoroughly tested in court, I still think EULA’s are a piece to your overall legal protection, along with a limited liability entity.
EULA’s are everywhere and seem to be used by everyone. But as a small business or a bootstrapping startup how can you get an EULA that you are sure will offer you some protection? As software developers I think we tend to look for an existing EULA in a product we’ve downloaded or already own and use that. Why re-invent the wheel when it’s already done. But you can get into some serious issues here.
First the law, legal language and legal formatting are all very important. You could have an entry EULA thrown out because of punctuation or capitalization, so this is something to keep in mind. Legal language in of itself can be extremely complex, from subtle meaning changes in common words to all out Latin. So DIY with an EULA can have some bad repercussions, especially because when you really need it is when it will be put to the test, i.e. in court, and that could cost you.
So what should a good EULA contain? Here are some tips you should look for in an EULA.
- Software is licensed not sold, license only
- Rights of the end user (how many computers it can be installed on, etc)
- License is valid and granted when/while it’s been paid for
- Limited Liability (you are not responsible for any damages beyond the purchase price)
- No warrantee or implied fitness
- User support/assistance if applicable
- License should be perpetual (in most cases), notice on material breach if failure to comply
- Force Majeure (Act of God) protection
- Provision ensuing that if part of the EULA is invalid, the remainder will still be in effect
- Governing Law should be your place of incorporation
- Notice with your companies contact information
This isn’t an all inclusive list, as there can be much, much more important parts of an EULA. For example if your distributing source that should be in your EULA as well to determine the extent of the rights transferred with that source.
So what is the best way of going about creating an EULA for your software? Well do you have a lawyer in the family or a friend that’s a lawyer? Well if you do beg and plead. If you can find a decent corporate law lawyer in your area I would recommend that as well. But if you can’t there are a number of sites that can help. For example LawDepot.com has and EULA that is constantly being updated. If your planning on multiple software products you can by the year version which will allow you to update and generate new EULA’s for all your products for a year, that costs between 50 and 60 dollars.
If your planning to go it completely alone you can do your research. Onecle has a list of over 5000 EULA and EULA like agreements you can view. There used to be a number of EULA generates on the web but it looks like they are all gone, which may be for the best. Also there doesn’t seems to be a nice generic EULA template to start from.
Bad Software: What to Do When Software Fails is also an interesting read. The book is a little dated now, but the underlying still holds true. Also Legal Guide to Web & Software Development from Nolo has lots of information plus some forms and agreements that can be used, including an EULA.
The bottom line, hire a lawyer if you can, else try and use a professional resource (like LawDepot or Nolo). If you can’t do that take care when crafting your EULA and compare it to the other ones out there.