The Top 5 Legal To-Dos for Female Entrepreneurs: Part Two
In Part One , we explored three top legal to-dos for female entrepreneurs entering the startup world. The last two are equally as essential. These five tips will help you create your business with confidence!
Editor’s Note: Bethany Corbin produced this thought leadership piece free of charge to SheVentures readers and SheVentures. Corbin values educating female entrepreneurs like us. In return, we support her as an attorney in femtech. No money is exchanged–pure women helping women.
If you’ve managed to tackle the first three to-dos — congrats! To refresh your memory: they are
to select your venture or product name, determine the appropriate business structure for your venture, and submit incorporation paperwork.
Now that your business is officially formed, you may be wondering what comes next. This follow-up article details two additional legal to-dos you need to undertake after forming your business. If after reading this, you’d like to chat, you can find me here.
Legal To-Do #4: Contract responsibly with third-party vendors to bring your venture to life 📜
Having completed the mechanics of forming a corporate structure, you must now focus on the design and lifecycle stages of your product or venture. Oftentimes, this means you will need to engage third-party vendors to help conceptualize your product’s framework, develop a minimum viable product, design your website, create your logo, and advertise your products or venture to create revenue. In other words, it is time to start building your team and your business for long-term success.
A key problem, however, is that not all third-party vendors are created equal.
It is up to you, as the founder, to compare services, vet contractors, and negotiate favorable terms into your agreements. Lawyers can be an extremely helpful resource here, as they can advise you on market-standard and favorable contract language, help you understand your legal risks under a proposed contract, and spot any red flags in discussions and negotiations with vendors. It is always a good idea to have an attorney review any contract before you sign it.
Their trained eyes may help you avoid disputes and litigation down the line regarding ambiguous or unfavorable contract language.
That said, it may not be feasible (either from a funding or timing perspective) to have an attorney review your early-stage contracts. In that case, it will be up to you to spot issues, identify risk areas, and redline your edits into the contract. Here are key tips for navigating that process:
Work with reputable vendors 👍
Research consumer or client reviews online prior to engaging vendors. You can often find preliminary information through a simple Google search.
I also recommend researching the entity on the Better Business Bureau (BBB). The BBB is specifically designed to help consumers find businesses and brands that they can trust. If an entity is listed on the BBB, it may have a BBB rating and/or be BBB accredited. These results should tell you how long the entity has been in business and will include any available customer reviews, complaints, and the company’s response, when applicable.
In addition to online searches, ask the vendor for the names and contact information for two or three references. Contact those individuals to learn more about their experiences with the vendor and any problems they encountered. If you don’t like what you hear, don’t be afraid to move on. Vendor relationships can last for a year or longer in most circumstances — it’s worthwhile to find the right partner to help bring your business to the next level.
Are you a female entrepreneur interested in scheduling a free 15-minute consultation with Bethany Corbin?
Review and understand any agreement prior to signing.🧐
Once you have selected a third-party vendor to perform work on your behalf, it is important to memorialize that relationship and the agreed upon scope of work. Most often, this takes the form of a written contract or agreement. In situations where you are working with well-established corporate vendors, you will often be presented with a “form” or “stock” agreement to sign. This is, in essence, a template contract that the vendor prefers to use with its clients to streamline the vendor’s obligations.
A common mistake entrepreneurs make is that they assume a form or stock contract cannot be changed. That is often incorrect. As a matter of practice, the contract should be specifically tailored for each engagement and include requirements directly applicable to the agreed upon scope of work. Though it is easier for vendors not to deviate from their form agreements, you need to make sure that all information in the contract is accurate and applicable to your arrangement. If something seems inapplicable to the work you are requesting, flag that language for the vendor and ask why it is included. Don’t be afraid to ask for the meaning or intent behind provisions if you are unsure.
Additionally, if you would like a term changed or added to the agreement, make that request! The worst a vendor can say is no. Some entrepreneurs are reluctant to request changes given the difference in bargaining power between an established vendor and a startup company. However, many vendors are often willing to consider language changes if they are rational and make sense in terms of the overall deal. Try to negotiate for provisions that will make your life easier.
Further, make sure that you understand all of your obligations in a contract before signing the agreement. Indemnity clauses, compliance obligations, representations/warranties, and “boilerplate” language can be dense and confusing to read. Indeed, some entrepreneurs are tempted to skip over the ending contractual provisions because they consider them “routine” in nature. This is not true, as boilerplate language can harbor important requirements and legal rights.
For example, consider a force majeure contractual provision, which allows a party to temporarily stop performing under the contract if a major disaster occurs (e.g., an “act of God” such as a flood, earthquake, labor strike, etc.). This is one of the many boilerplate provisions that are often overlooked during contract drafting and negotiation.
Yet, when the COVID-19 pandemic hit, many companies tried to use their force majeure provisions to stop contractual performance or delay it. When litigating these cases, their success (or failure) often hinged on the precise wording of the force majeure clause in the contract, and the similarity of a pandemic event to the other events described in the force majeure provision. One or two words can make all the difference in these situations.
Get the vendor to sign a confidentiality or Nondisclosure agreement, known commonly as an NDA. 🖌
If you provide any sensitive or proprietary information to a third-party vendor, it is crucial to have the vendor sign a confidentiality or nondisclosure agreement. You built your company and created a unique product design or venture strategy. You don’t want a third-party vendor to take your ideas, know-how, and intellectual property and place those ideas either into the public domain or in the hands of your competitors. Before you give a vendor any of your sensitive, proprietary, or confidential information, make sure the vendor has signed a confidentiality or nondisclosure agreement. Template confidentiality agreements are often available online through Google, and the language can be tailored to meet your specific needs.
Ensure you own the work product you paid for under the agreement. 💵
If you work with a vendor to create a new design, product, or other intellectual property specific to your business, you will want to ensure that you are the owner of all work products created on your behalf under the agreement. Alternatively, if you are not the sole owner (for example, the vendor is using code in your product that is proprietary to the vendor and that the vendor has used for other clients), you will want to ensure that you have a perpetual, royalty-free, irrevocable license to use the work product. You don't want to be in a situation where a vendor has used its proprietary knowledge and intellectual property to build your product yet, you don’t have the right to use that intellectual property. Such a scenario would render your device or product functionally useless, despite the fact that you paid for the vendor’s services under the agreement.
When reviewing any contract for which a vendor is creating a product on your behalf, read the intellectual property section carefully to understand your rights in the product that is being created. If necessary, you can request that the vendor either include specific intellectual property language in the agreement to give you the rights you need, or you can draft a separate inventions assignment agreement to transfer the vendor’s rights in the product to you.
Legal To-Do #5: Prepare the foundational user documents for your web platform or application.💻
In today’s world, a vast majority of products and businesses have dedicated websites where consumers can learn more about the company or device and, in some instances, order products. Similarly, some companies may have an app as part of their user platform. Before you launch your web site or app and begin collecting consumer information, you need to have two foundational documents in place: (1) terms of use and (2) a privacy notice.
The terms of use (TOU) is an agreement that every user of your website or app/product must accept prior to using the services provided by your website or app/product. If written properly, the TOU is a binding agreement between your company and the user that automatically takes effect when the user accesses your services, products, apps, or webpage. Having an accurate and comprehensive TOU can help mitigate liability for your website, app, and company, describe permitted user conduct for the website, and establish an indemnification process (i.e., a process for receiving compensation for losses that your company may suffer as a result of a user taking specific actions) for your website, app, or product. In this manner, the TOU serves a crucial risk-mitigation function and establishes the outer boundaries of the corporate-consumer relationship.
A privacy notice, on the other hand, explains to the users of your website, app, or product how you will be collecting, using, disclosing, and safeguarding consumer data. The notice should explain how you collect personal data, how you use the collected data, who has access to that data, the consumer’s rights regarding her data, the data retention period, and how a user can delete her data.
It is important to draft an accurate privacy notice. Otherwise, the Federal Trade Commission (FTC) and/or state attorneys general may initiate action against you for unfair and deceptive practices for misrepresenting your data practices. Transparency and accuracy are therefore key for this document.
However, when first designing their privacy notices, many new startups copy and paste the privacy notice from a competitor organization. The rationale for this copying and pasting is that, if the language was successful for a competitor, then it will be successful here too. Many entrepreneurs also don’t have the knowledge or resources to draft a full privacy notice from scratch.
This approach is quite problematic, as the language is not specifically tailored to your organization. The purpose of a privacy notice is to describe your data lifecycle and the ways in which you use and protect that data. Your competitor likely uses, collects, and discloses data for different circumstances and to different individuals or entities than you. Copying and pasting an existing privacy notice that does not match the particular data lifecycle and flow of your organization can result in legal liability or investigation by the FTC.
Accordingly, I recommend that you take time to draft your privacy notice to ensure it is accurate and transparent to consumers. Whenever possible, allow consumers to make a meaningful choice regarding the collection of their data. Further, make sure you have a mechanism in place to notify consumers about any updates that you make to the privacy notice. This is a living, breathing document, and as your priorities or business practices change, your privacy notice should evolve simultaneously to capture new uses of data and new business models. When in doubt, have an attorney or advisor review your customer-facing documents.
The road to entrepreneurship is filled with bumps, potholes, and traffic jams. It is unpredictable, but simultaneously fast moving and exciting. Don’t be afraid to ask for help and recommendations among your community and friends.
Though resilience is the ultimate key to success, a strong legal foundation certainly helps!
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This expert produced this original thought leadership piece free of charge to SheVentures. This expert values educating female entrepreneurs and the SheVentures community. SheVentures is not receiving affiliate compensation from the author/expert. Questions? Contact social@sheventurespodcast.com.
