Contracts 101

In building your business, you can’t do everything alone. You need business partners, employees, contractors, third party service providers, brand ambassadors, retailers—the list goes on. It literally takes a village to bring your business from concept through to the marketplace. Each one of these relationships entails a transaction: services to be supplied in exchange for compensation. But there are additional expectations that are likely required to be met in order for the business relationship to be successful: confidentiality, deliverables, quality assurance, payment terms and more.  

The best way to ensure that the business relationship is successful is to contractually bind the other party to those terms in writing. Not to be overly cynical, but let’s do away with the “business handshake”. It will get you nowhere when your business relationship goes sideways. Moving forward, repeat the mantra: “I will get it [the agreed upon business relationship] in writing!” A written agreement clarifies the relationship, provides enhanced enforcement rights and clearly sets out each parties’ rights, responsibilities and obligations.  

For the most part, agreements should be customized to fit the specific nuances of the business deal at hand. This article provides an overview of some of the terms that should be included in an agreement and the nuances of how those terms should be addressed.  

• Parties – Who is entering into the contract? Can it be assigned to a 3^rd party?  Who is performing the obligations? Is that entity bound by the contract?  
• Term – How long are the parties bound? Is it renewable? Evergreen renewal or on notice?  How much notice? What are after term obligations?
• Performance – Who is doing what? What are the performance milestones/deliverables? Who is performing it? Can a 3^rd party be retained to perform the obligations? What are the criteria for performance? Are there quality restrictions/guidelines associated with the performance?
• Consideration – What is the exchange for performance? Money? Reciprocal performance? 
• Payment Terms – Who is paying who? For what? When? Monthly?  Quarterly? Annually? Based on commission? Based on performance success? Is there an approval process for additional incurred expenses? 
• Currency – What currency are you paying in?
• Performance Milestones – What are the deliverables? According to whose standards are those deliverables met?  
• Termination – How can the parties terminate the agreement?  Differentiate between fault and no fault. What are the obligations upon termination?  
• Breach – What is material breach? What is immaterial breach? Is there a notification process with an opportunity to fix the breach?  What if you breach?
• Resolution – How are disputes resolved? Internal process? Arbitration? Court? Where? 
• Governing Law – What is the governing law?
• Non-Compete/Solicitation – Be realistic.
• Intellectual Property – Who is bringing what to the table? Who owns the background IP? Who owns the future IP? Is there a license back? Are the moral rights waived? Is there an assignment? Is there an obligation to not contest?
• Confidentiality – What is confidential? Have the parties put up systems to protect internally? Who can share what information with whom? Does this obligation extend beyond term of agreement?
• Reps and Warranties – Additional “outs” that lays the foundation of the agreement (i.e. Has the right to enter into the agreement. Not limited by a 3^rd party agreement. Has the right to license the IP).
• Indemnification – Contractually shifts the responsibility.  
• Territory – Where does this bind?
• Force Majeure – What triggers a force majeure? What non-performance is allowed under the force majeure?