Tag Archive | "Business Contracts"

Should Founders Assign IP to Their Tech Startups?

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Should Founders Assign IP to Their Tech Startups?

Handing Over the KeysThe short answer is YES!

Lots of technology startups, internet startups and software startups I work with have typically developed some degree of intellectual property prior to actually organizing a business entity (corporation, LLC…etc). Sometimes that IP is very early stage, sometimes, especially in the case where a founder is a developer or engineer, the IP may be very far along in terms of development. Sometimes that IP may simply be a domain name. This may not seem like a big problem initially – but if the company ever wants to (a) enter into any significant contractual relationships relating directly or indirectly to the IP, (b) raise capital via private equity or debt, or (c) sell the business, not assigning the IP to the company can be a big problem. The other parties in the transactions mentioned in the previous sentence will require that the company represent that it owns the IP – and when it can’t make that representation (because it doesn’t) – those other parties will require that it be duly assigned by the founder to the company. What if the founder then demands a big payday? What if he walks – and takes the IP with him?

To prevent all of this and a litany of other problems, founders should assign to the company whatever IP they own / have developed that is related to the business of the company – and the assignment should be made upon inception when the first grant of stock is made to the founder. This may be done via a simple, broadly worded, IP assignment agreement.

Of course, this assignment should be coupled with other considerations, such as whether the business should hold it’s IP in an IP holding company, and how founders ownership will vest. Check back soon for posts on these topics.

As always, you should consult an attorney to help you with the matters discussed in this post.

Posted in Starting a BusinessComments Off on Should Founders Assign IP to Their Tech Startups?

Buy-Sell Agreements – Preserving Ownership and Control of Your Business

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Buy-Sell Agreements – Preserving Ownership and Control of Your Business

One recurring question I get from my business owner clients is regarding how to maintain ownership of their business entity in the event another owner disposes of his interest in the entity, whether it be a voluntary or involuntary disposition.  In the context of a corporation, this issue is typically dealt within a buy-sell agreement between the shareholders;  in the context of a limited liability company, buy-sell provisions are usually drafted into the operating agreement.  Any business that has multiple owners should always deal with this issue, in writing, before potential problems and arguments arise.  Most business people and lawyers will agree that dealing with these sorts of potential conflicts up front is the secret to long term harmonious relationships among business owners.

There are many many different ways a buy-sell agreement can manifest itself.   Below I have listed a number of questions that business owners should consider when planning for a buy-sell agreement.

  • Should the mechanism to maintain ownership be redemption by the business entity or purchase by the other owners?
  • Should the buyer of the interest be required to buy the transferring owner’s interest?  Or should the buyer merely have the option to do so?
  • Should the non-transferring owners have a right of first refusal?
  • What happens upon the death of an owner? What about the permanent disability of an owner?
  • What happens if an owner divorces or declares bankruptcy?
  • What happens if an owner wants to sell his interest to a third party?
  • How is the price determined?
  • How is the price paid?  Cash?  Note?
  • Should the owners be required to maintain life insurance policies to fund the purchase?

These are just some of the issues business owners should explore when considering a buy-sell arrangement with other each other.  Of course, I recommend you retain knowledgeable and experienced legal counsel to help you through the process and to make sure your provisions are properly prepared.


Posted in Running a BusinessComments (1)

Business Contracts – Be Careful of What You Commit to in Your Emails

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Business Contracts – Be Careful of What You Commit to in Your Emails

It is no secret that a great deal of modern business is conducted via email.  What most people don’t realize is that an email exchange can be construed as creating a valid and enforceable contract, sometimes inadvertently.

If an e-mail or chain of e-mails clearly states an offer to enter into a transaction with all of the material terms, and the recipient / offeree responds by email accepting the terms, then it is entirely possible that an enforceable contract has been formed — without any printing or actual exchange of signatures.

With the adoption of the Uniform Electronic Transactions Act (“UETA”) in most states and the passage of Electronic Signatures in Global and National Commerce Act (“ESIGN”) by the federal government, the stage was set to allow contracting via email.  Each of these acts is based on the principle that electronic signatures carry the same legal effect as handwrittten signatures.

Both laws accomplish this by establishing a procedural approach to meeting “writing” and “signature” requirements:

  1. A document or signature cannot be denied legal effect or enforceability solely because it is in electronic form;
  2. A contract cannot be denied legal effect or enforceability solely because an electronic record was used in its formation;
  3. If a law requires that a record be in writing, then an electronic record satisfies the law; and
  4. If a law requires a signature, then an electronic signature satisfies the law.

Under ESIGN and UETA, parties must agree to use electronic signatures and records. Between businesses, consent to do business electronically can be established either explicitly or by implication based on the parties’ interactions

Federal and state law specify certain types of documents that cannot be signed electronically, including wills, trusts and estates; marriage, divorce, adoption, and other family agreements; court documents and filings; utility service terminations; eviction, foreclosure, and repossession notices; health and life insurance termination notices; documents referring to the handling or transportation of hazardous materials, real estate purchase agreements and deeds.  While this list will vary from state to state, generally these types of agreements require a writing, signed (in ink)by the parties.

What does all this mean?  Be careful in your email exchanges that contain the material terms of an agreement. If all you intend is to negotiate the terms and issues leading to a formal written and signed contract accepted by both parties, make sure that you explicitly say that in your e-mails. On the flip side, if you are trying to enter into a contract via email, there are safeguards to take to make sure you have a complete and enforceable agreement – which you should consult with your attorney about.  You could also check out an electronic document services such as DocuSign.

My technology law practice can help you deal with issues like this, along with other technology law issues including licensing agreements, e-commerce, and click-wrap agreement for websites.

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