How to Write A Contract for Startups

The following article will help you understand contracts better and help you write your own. Good contracts are the cornerstone of a good business. Understanding them and having proper agreements will help you excel in your business.

WHAT IS A CONTRACT?

Agreement between two or more parties enforceable by law and has the following four elements:

(1) Intention to create a legal relationship

(2) Offer and Acceptance

  • It cannot be unilateral
  • There must be a meeting of the minds between the parties. Eg. Offer of goods or service in exchange for money
  • The acceptance can be:
    • in writing or verbal or by action
    • must be communicated clearly
    • must be in the form specified (eg. Offer to be accepted by email then you must do so by email).
  • Offers can expire through: retraction, lapse, revocation or counter-offer.
  • An Option Agreement allows a party to keep an offer open for a specified period of time in exchange for money or something else of value.

(3) Consideration

There must be an exchange of something in value

Any changes to a contract or variation require additional consideration.

A one-sided promise is not enforceable eg. A family member’s promise to do something for you or give you a gift of something

Exception: debts, contracts made under seal that indicates an intention to be legally bound, promissory estoppel.

(4) Legality

It cannot go against public policy, the administration of justice etc

 

CONTRACTS IN BUSINESS

  • Employment Agreements
    • Employees (full time, part time)
    • Independent contractors
    • Subject to Federal and human rights legislation
  • Service Contracts
    • Financial advice, research, marketing analysis, storage, transportation, cleaning, maintenance, computer, Internet services, advertising, web development and design,
    • Leasing Contracts
      • Rental of office space or equipment
    • Contracts for the Purchase and Sale of Goods
    • Insurance Contracts
    • Non-disclosure and confidentiality agreements
    • Trademark Licences
    • Assignment or Licence of Copyright or a Patent

      IMPORTANCE OF CONTRACTS

    • Clarify Party Expectations and Obligations
      • Contracts can clarify the business dealings between parties
      • It eliminates misunderstandings and confusion
  • Avoid Unexpected Results
    • Improves business relationships
    • Avoid Surprises
    • Have a level of predictability so you can plan your business accordingly
    • Knowing legal terms
  • Dealing with Disputes
    • Helps working relationships because a good contract can help avoid disputes
    • Contract law can govern disputes and how to deal with them when they arise

      ACCEPTANCE OF CONTRACT

A contract is formed when the party who accepts the offer communicates it in the manner required by the offering party and in the format specified (i.e. email, courier, mail etc.)

  • Acceptance by Action
    • Do not necessarily need verbal or written confirmation.
    • Eg. Order something online and it’s shipped without any acknowledgement beforehand
  • Acceptance by Mail
    • when acceptance in the mail (and not when offering party receives acceptance).
  • Acceptance by Email or Online (I Accept or Submit)
    • 22(3) of the Ontario Electronic Commerce Act, 2000
    • Once that email message or online acceptance has reached the information system of the offering party’s Internet service provider and is capable of being received, its deemed to be received.
    • Acceptance presumed to have happened regardless of whether the recipient has read the email.

      CONTRACTS IN WRITING

Contracts do not have to be in writing except:

  • consumer transactions
  • sale or leasing of land
  • contracts that guarantee another person’s debt if that person defaults on their payment obligations.

A business lunch and handshake can constitute a binding contract as long as there is a meeting of the minds

You may be bound by an oral agreement and be aware of the risk involved. Even if you have an oral agreement, there is no way to prove it unless it is in writing so it’s good practice to do so.

Finalize deals with written contracts is a good practice.

Be wary of using a template from the internet as you are taking a risk.

 

PRE-CONTRACTUAL ISSUES

 

Statements during Negotiations, Emails & Other Paperwork

Be careful of what you agree to in emails and other ancillary paperwork in addition to the contract as they can be formed as part of the contract.

You want to have language in your contract that says that any prior agreements, etc are not formed part of the contract. This clauses reinforces the parol evidence rule that if there is a dispute as to the meaning of a contract, a party may not introduce statements made during negotiations unless they are in the contract.

This contract constitutes the entire agreement between the parties. There are no representations or warranties, express or implied, statutory or otherwise and no collateral agreements other than those expressly referred to in this contract.

Finalize major deal terms first is a good idea

  • Term (limit term vs. automatic renewals)
  • Territory (Canada only vs. worldwide)
  • Exclusivity
  • Fee (fixed or royalty)
  • What rights are being licensed
  • What are marketing/PR efforts?

Identifying the Parties

Accurately name the parties and the proper legal party.

Is the independent contractor providing services as an employee or through its own corporate entity?

Make sure you do research on the other party to make sure they are legitimate and trustworthy.

Use proper corporate name and not your personal name or you can be personally liable.

Ask to see the articles of incorporation if you have any doubts.

Personal guarantee.

Are they Signing personally or as a sole proprietor?

Get contact information, name, address, name and position of the person signing the contract.

If there are more than one artists or artists assisting you, identify the main artist entering into the contract.

If you have an artist team, consider getting incorporated or list all the names of the artist as entering into the contract.

Add the name of building owner/landlord.

Get full contact of everyone including, the commissioning party, building owner, artist team, supervisor, etc.

 

CONCEPTS/IDEAS

Don’t give away your ideas/concepts or do any work without a signed contract

Don’t provide sketches or provide proposals without knowing you have an actual deal and it’s clarified that you own the intellectual property

i.e. You can lose your patent if you don’t follow certain disclosure rules

Remember that there is no copyright in ideas or concepts

Register your trademarks, copyrights and patents.

Be familiar with work for hire clauses

PROTECT YOUR INTELLECTUAL PROPERTY

Generally speaking, an employer will automatically own all the IP unless you specify otherwise

If you are an employer and you’re working with an independent contractor, make sure you obtain an assignment of IP, confidentiality and non-solicitation clauses.

 

NEGOTIATIONS

 

Ensure you are dealing with the person at the company that has authority to agree to the terms and get the sign-off

You don’t want the other side confirming you will own the copyright or retain your intellectual property only to have your negotiations go down the drain because someone in a higher authority retracts that understanding

WHOSE CONTRACT DO YOU USE?

Do you use their contract or provide your own? It is helpful to get the other side’s contract so you can see what you are dealing with and how fair they will be.

Specify Effective Date of the Agreement

Date of the last signature?

Specified in the contract

Does it commence at the start of the term?

Do both parties have to sign?

 

GRANT OF RIGHTS

What rights are being granted?

  • Reproduce, sell, distribute, modify/adapt, display, perform, promotional billboards, etc.

Can they modify the intellectual property?

  • Assignment of Rights (execute any and all documents to evidence assignment)
  • Waiver of moral rights?

Reservation of Rights clause

  • Licensor reserves all rights other than those being specifically granted in this Agreement.

Sub-licensing?

  • do they need to obtain prior written consent to a sub-licence?
  • Not to be unreasonably withheld?

The following is a sample grant of rights clause for an artist’s services:

Engagement of Artist’s Services:

The Artist shall conceive, design, create, produce and deliver a the Artwork in the form of a mural for the Client as a permanent [or temporary] installation at the Site(s) during the time periods noted in the Deal Terms. Subject to payment of the Fee noted below, Artist grants the Client a non-exclusive licence permitting the Client to reproduce the artwork created by Artist and attached as Schedule A (“Artwork”) for a period of the Term noted in the Deal Terms, subject to the wall/facade not being obstructed should the building beside it decide to undergo construction (the Term) on the building owned by the building owner at the Site.