Thinking about contracts any consensus between two parties can be termed a contract but from experience, we know that it is always better to have things in black and white on paper, so it’s going to be very important for us to understand how contracts work.
Key Aspects of Contracts:
Any type of contract contains a certain set of covenants, rights, and considerations. For any party, various aspects demand a closer observation before signing the contract. A few of them are listed below:
- Term of Contract – It could either be a long term/short term. For judging the period of the contract, you need to consider factors like the level of dependency on the product, getting a price bargain, etc.
- Termination – This aspect helps you understand the various circumstances under which you may end the contract before the term ends. For example – breach of terms and conditions/mutual consent etc.
- Exclusivity – An inclusion of exclusivity clause would bind you to service only that party, barring you to transact with the rest of the world for similar services.
- Payment – Under this, you decide on the timing of payment; is it in advance or after services are rendered, are there any credit periods involved or is a payment to be made in tranches, etc.
- Service Levels – It is important to elaborate on the nature of services and the expected standards they are to conform to so that there is no ambiguity on deliverables.
- Indemnity – Under this clause, you have the right to claim money for the losses suffered due to a breach by the other party of its commitments.
Type of Contract:
Founder and Employee Agreements
Founder Agreement – that you will enter into with your other key founders, now this often varies upon you’re the co-founder or is this a venture stepping up with family members or with friends and family, so depending upon the background through which you are setting up your company and who are the key shareholders of your company . i.e. it’s just family, its friends, and family, you are the only founder or if there are other founders those are the key aspects which will govern the terms of your founder’s agreement.
- Decision-making authorities
- Right to vote
- Shareholding pattern
- Onus of funding
- IP ownership
- Expertise remuneration
Employee Agreement –
- Exclusivity
- IP Assignment
- Employee Termination
So what are the key terms of an employment agreement from founders perspective or what you need to do to protect the company and also what is something employees want so you have a good halfway point and are presenting a fair contract? So one of the key aspects here which are there even in business contracts is exclusivity. If your signing on an employee who is not a consultant but an employee you will want him in and whole time services for your business it could be some standard carve-outs of investments there are certainly other activities so long it does not harm or affect the obligations of the company, of the basic terms of an employment contract is to make sure your employee is rendering services Exclusively to you and is not an employee in multiple organizations The 2nd most important aspect is IP assignments, we have discussed earlier the importance of IP where the IP and where the IP should rest but the end of the day if you have employees is generating certain work especially.
Vendor & Customer Contracts
- Vendor Contracts
- Service Contracts and
- Customer Contracts
Anyone on fundamental decisions depending on what he is bringing to the table so that there is no deadlock among founders. The other things which you need to put our IP rights and ownership of IP (which should solely vest in the name of the company); remuneration structure for the co-founders.
The next contract is the employee agreement, where you try to create a win-win situation for both the employer and the employee.
- Exclusivity – By making the employee agree on exclusivity clause, you ensure that his or her service and time is not being shared by any other employer simultaneously.
- Non-Compete – This is to make sure your employee does not join a competitor and divulge critical information regarding your business. However, there are legal issues on the validity of non- compete obligations post the termination of employment.
- IP Ownership – You need to protect and ensure that all the intellectual property rights of the work created by any employee is owned by the company.
- Confidentiality – Finally, you need to have confidentiality clauses in place, to prevent employees from sharing sensitive data with the any third party.
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