Foundational Agreements for Start-Ups
There are some types of contracts that virtually every business will utilize at some point in that business’s life. These are considered foundational agreements as they are of great importance to a business’s efficient and effective operation. A few common examples of foundational agreements include: non-disclosure agreements, employment agreements, and testing agreements, just to name a few. The process of preparing, negotiating and finalizing these agreements provide a great way for all of the parties to clarify their desires, expectations and objectives.
Non-Disclosure Agreements – Informing your client of the value of a non-disclosure agreement before any ideas are shared is imperative. The client always should ask: “Should I have an NDA with this person/entity?” The consistent use of NDAs—even with friends and family—is generally a good idea because the client’s ability to obtain patent protection may hinge on whether the client publicly disclosed relevant information.
Employment Agreements & Independent Contractor Agreements – Generally it is a good idea to have every employee and contractor of a company enter into a formal agreement. A buttoned-down talent acquisition process sends the message that “this company takes pride in its people, products and ideas” and it helps promote a culture of mutual respect between owners, employees and contractors. It is important to understand and address “work for hire” issues in these agreements. Even in the employment context, it is a good idea to include a blanket provision clearly stating that all works created (e.g., software code) is a “work for hire” for which the company is the owner. Also, consider inserting a provision that expressly transfers to the company any such works or inventions created by the employee or independent contractors in connection with their services to the company.
Testing Agreements –Your clients’ works and inventions may undergo some form of beta testing by third parties. In such circumstances, instead of a standard NDA, consider using a customized “testing agreement,” which not only protects your intellectual property and confidential information from unwanted disclosure, but can also be tailored to permit the testers to disclose certain types information (like their experience with the work or invention) in the form of a review on certain approved blogs or forums. It is important, however, to ensure that no breach of confidentiality occurs in the process.
The above examples are just some of the agreements that a start-up business may utilize for the purpose of running efficiently and effectively. Furthermore, the number, scope, and matters covered by these agreements will vary widely depending on the size, scope, and business objectives of the particular company. The final installment of this blog series will provide a brief discussion regarding acquiring third party intellectual property rights.
Steven J. Enwright is an attorney and partner at Lippitt O’Keefe, PLLC in Birmingham, MI. Steve advises clients in a wide variety of industries on business matters including general corporate counseling, mergers and acquisitions, start-up counseling, venture capital, corporate finance, technology licensing, and a variety of contract law matters.