Any Founder, especially a repeat-Founder, will tell you that the proverb of “an ounce of prevention is worth a pound of cure” applies to legal agreements. As a start-up business owner you will need several critical written agreements to assist in securing and growing your business. Unless you go it alone without any legal assistance, there are several key agreements recommended to keep your business secure after the business has been formed and as it begins to ramp up.
Employment agreements and independent contractor agreements can be utilized to help avoid disputes with those individuals, either employees or independent contractors, who you will employ to grow your company. These agreements will define these work relationships with critical items such as compensation and duration of employment, paid time off and benefits, status of employment (usually at-will employment terminable at the will of the employer), and contain other key provisions such as methods for resolving disputes via mediation or arbitration or court proceeding, location for resolving disputes as well as applicable state law to be used in the event of a dispute. Independent contractor agreements, in particular, will need what IP attorneys refer to as magic language, namely “work for hire” provisions.
Non-Compete and Non-Disclosure Agreements
Non-compete and non-disclosure agreements will assist in the protection of your trade secrets, customer accounts, and other confidential information that your employees who leave have access to or third-parties who will be exposed to during the course of their contact with your business.
A non-compete agreement generally restricts employers and contractors for a period of time and within a determined location from your business from working for a competing business, which may put your customers or business secrets at risk, and are generally enforceable to varying degrees in most states. Employment or non-compete agreements may also contain confidentiality or non-disclosure provisions that help prevent disclosure of your important business information to competitors or others.
A stand-alone non-disclosure agreement can be utilized when negotiating deals with customers or whenever sharing sensitive financial or other confidential information about your company to third-parties in the course of growing your business. A non-disclosure agreement (sometimes referred to as an NDA) prevents the disclosure of sensitive information or your unique ideas or inventions, reserves ownership rights of the information or ideas in you or your business, and dictates the return of such information at the end of your discussions or negotiations.
Manufacturer or Supplier Agreement
Manufacturer or supplier agreements are utilized in the event you require the services of a manufacturer or supplier for your business. As with employment agreements, these agreements detail the terms of your engagement and can contain confidentiality provisions together with dispute resolution provisions such as mediation, arbitration and other means to enforce legal remedies as well as choice of forum and choice of law provisions for any disputes arising under those agreements. There are few things that are more expensive or inconvenient to your business than being dragged into another county or another state to defend a dispute in court with your manufacturer or supplier. Well-drafted manufacturer or supplier agreement can typically save you those headaches.
Trademark License Agreements
Trademark license agreements are essential to provide to any affiliates promoting your goods or services through the use of your brand identity or trademarks, even if you are at the point where you have not registered a trademark. A failure to properly license others in the use of your trademark can result in the loss of your trademark rights and jeopardize the otherwise exclusive right to your brand or business name. Remember, trademarks are not the only kind of IP that you could license, and you should also consider other intellectual property license agreements.
Budgeting for your legal business needs to protect your growing business through the use of key business agreements is essential for your long term growth and success. Such agreements will be imperative to have in place in the event you intend to exit or sell your business to a third-party who will want to see that you have minimized risks associated with the business through the use of these essential business agreements.
Founders’ Friday is a series published by attorney Brian A. Hall of Traverse Legal, PLC d/b/a Hall Law on Fridays dedicated to legal considerations facing founders and start-ups. This week’s post contributed by Partner Mark Clark.