I learned that in their quest to get their company off the ground quickly, they bypassed a few key protective elements that could ultimately derail their enterprise.  For example,

• The product idea was derived from a “discarded” product concept that the founder had raised at his previous employer.  (To add a twist, the founder had changed roles from an employee to a consultant at some point during the process.)  The employer was supposedly supportive of the new company running with the product, but there was no formal arrangement with the employer.
• The founders had come together through a mutual acquaintance and seemed to work well together, however, they had no formal agreement between themselves, and it was not clear what technology belonged to the company and what technology belonged to the founder who brought it in.
• They had used contractors to help them develop their software and designs.  They had formal agreements with some contractors, but in those cases they used the contractor’s agreement forms or a form they found on the internet without really reading it, and definitely without legal review.
• Their initial customers helped them with refining some components of their product and in some cases, the company developed add-on features that were requested by their key customer.

This type of fact pattern is not uncommon.  Cash-strapped business owners do the best that they can with the few resources they have to work with, and often knowingly (or unknowingly) assume some fundamental risks until they get far enough along to circle back.  Unfortunately, any of the scenarios described above could result in a tragic implosion in the future if not properly addressed.

A company in this situation needs to focus on nailing down the ownership of its intellectual property and to make sure to get its corporate house in order.  Agreements with the former employer, the contractors and the customers, and agreements between the founders, can more easily be addressed as this early stage.  If an issue or objection arises now, it is more likely that it could be resolved now – before the company becomes successful or before the eve of a critical financing or acquisition.  Few things kill an important deal faster than a surprising cloud around the ownership of critical intellectual property.

Website Terms of Service and Privacy Policy. Here is an interesting approach to generating a starting point for website terms of service and privacy policy.  The company Legal River (with law firm General Counsel PC) has made a few tools available on its site to help users generate website Terms of Service and a Privacy Policy.   These tools can provide a good starting point.  I think the Privacy Policy is pretty basic and would not be suited for use in California.  The Terms of Service are more extensive, but would still need some tailoring for specific business needs.  However, each of these would be useful for the business owner to review and become familiar with before getting a lawyer involved.  In many cases, they will help you define your needs and avoid some legal costs related to sizing up the business needs.  When possible, I encourage my clients to review similar industry contracts and terms to get a feel for commonly used principles.  This helps us more efficiently arrive at a finished product that serves the client well.

(Legal River is a lawyer sourcing service that appears to help users find business legal help.  It’s an interesting idea, but I’m not a fan of relying on anonymous web listing or directory services to secure good business legal counsel.  I’m sure that very good lawyers participate in these types of services.   However, I think a company is best served by seeking out referrals from trusted sources and then speaking with prospective legal counsel to understand their practice style, experience, etc. )

Dynamic Cap Table Simulator. Here is a neat equity simulator that can help you analyze different elements and implications of the capital raising process.  This tool is best suited for angel and venture capital funded companies.  Set aside a nice chunk of time to play around with it.

1. Over the years I have worked with a number of small corporation clients who have straight forward operations and very few (if any) organizational changes from year to year.  For example, companies with a few founder shareholders who have a steady business with little need for change.  I provide support with their annual shareholder and board of director meetings, but after years of familiarity with the process, several clients choose to handle their annual meetings on their own.  In many cases there is no need for them to pay me or anyone else to handle these largely ministerial tasks.
2. I have been receiving more and more nervous calls from clients who receive “annual compliance” notices that appear come from a government agency and are designed to frighten companies into paying the unknown company to prepare annual compliance documents.  I know the Attorney General has gone after several such companies, but those notices keep coming.

So after a few months of tinkering, I recently unveiled my side project – www.MinutesGenerator.com.   This is not a solution for all companies. For many companies this tool will generate basic minutes for review and modification by me or another attorney.  However, for many small companies, this tool will serve the need for generating basic annual meeting minutes.

If you have a corporation, give it a try and let me know what you think.  Any comments or suggestions for improvement are welcome.

I encourage my clients to at least understand the contents of their agreements, and ideally to consider the standard terms as part of the overall commercial “package”.  Even though terms are “standard”, the nature of certain key provisions could have an indirect impact on pricing and other deal terms.  A company that is taking on more potential risk exposure has a case for charging more and gaining concession on other points.  A company that aggressively shifts substantial risk of loss and exposure to the other party can find little sympathy for requesting other concessions and can foster distrust.  (However, such a company may be in a position to force their terms because they offer such a unique value or are the only feasible alternative for their customer.)

I recently had a client contracting with two separate vendors to provide similar services in different locations.  One of these vendors (Vendor A) had a very one-sided form of service agreement that was generally designed to protect the vendor to the detriment of the customer, and to eliminate any potential liability exposure, even for areas where one would expect the vendor to be responsible.  The other vendor (Vendor B) had a middle-of-the-road form of standard agreement.  The key terms started off where one would expect reasonable parties to end up after some negotiation.  Interestingly, Vendor A’s pricing structure was higher than Vendor B’s, but without a significant difference in quality or service levels.  Vendor B was able to get their deal closed and moving faster.  Vendor A had to endure a more painful negotiation process to bring their agreement in line with acceptable terms.  Their pricing suffered as well because the extra attention necessary to work with their agreement created more scrutiny for the underlying service offering.

I have been involved in a number of cases where we revised pricing and obtained other concessions by pointing out that my client is being pushed to absorb a higher level of risk exposure.  It’s not always easy, but knowing that seemingly “boilerplate” contract terms can be modified and manipulated to structure a desirable compromise can be useful.

Often these transactions involve basic technology licensing and other terms related to a basic commercial transaction.  However, in many cases, these transactions are related to other business events, such as a corporate investment or joint development effort, or some kind of strategic business alliance.  I have worked on a lot of different types of deals with clients in various industries.

This is a challenging type of practice because of the host of factors that can vary from one transaction to the next.  In addition, it is fun and satisfying to work with dynamic companies that bring new and innovative solutions to their customers.

In addition to commercial transactions, I also have the opportunity to assist my clients with a range of other corporate and business matters.  For example, I get involved with completing business investment and financing, formation and organization, stock option plans, corporate governance and other matters that come along that relate to the health and well being of the business.  If a particular matter comes along that is outside of my expertise, I work with other attorneys that assist my client or I tap into valuable relationships that I have developed over the years with great lawyers that have the right expertise.

I thought it might be interesting to use this forum to write about developments and concepts that affect my clients and similar companies.