What You Need to Address When Going into Business with SomeonePresented By: Asa C. Garber Date: 3/22/2016

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cCarthy Law, LLC

How things begin... There is a (fairly) clear

vision of the company You have promising

strategies to move forward

There is a general sense of excitement and motivation

The core group dynamic is strong and singularly-focused

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cCarthy Law, LLC

Things change… Visions for the company

diverge Fundamental

disagreements as to how the company should proceed in a significant area arise

Levels of commitment to the company differ

Personal issues cause unforeseen changes

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cCarthy Law, LLC

What are your priorities?

If your business partner wants to end your relationship, what do you want to protect? The survival of the business? Your ideas:

For the product or service?For the organization of your business?

Your exit goal(s)? Branding and trademarks? Investors and associated leads? Contracts and contacts with suppliers?

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cCarthy Law, LLC

And it’s not just partners…

Early employees or those working with you for equity will likely have access to the things you wish to protect, including trade secrets.

Training an employee could be the same as training a future competitor.

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cCarthy Law, LLC

Invest in a contractto set expectations

You can use a contract to protect your interests and plan for changing circumstances.

You can invest your own time to draft up an agreement and have it signed.

You can invest in an attorney to review your draft or to draft an agreement for you.

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cCarthy Law, LLC

How to begin…

Explain the situation: Write a short summary of your business and its purpose Write a short explanation of what each person does in the business Create a 6 months/1 year/5 year plan

Explain who makes what decisions and how conflicts are resolved Brainstorm what both parties intend if the relationship ends, for

whatever reason (disagreement, better opportunity, moving, transcendence)

List how assets will be distributed should the relationship end

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Why is this important?

Stability: The loss of a business relationship is inherently disruptive to a business. A quick resolution of that loss will allow the remaining individual or individuals to focus on the business, rather than the loss.

Avoid Litigation: People sue when they feel wronged. By talking out potential issues while the relationship is most functional, those individuals are less likely to sue. Even if they do, a signed and written agreement will greatly reduce the time and cost involved in the litigation.

Guidance: By asking and discussing these questions, you will have a better idea of where your business is going and how to get there. Talking through expectations will also assist in everyone understanding her or his role.

Mental Health: Conflict is stressful and life is short.

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cCarthy Law, LLC

Common issuesto address

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cCarthy Law, LLC

Division of Assets/Other Value I

Issue: Two or more individuals enter into a relationship to promote a new product or service. This will involve developing the product/service, organizing the business, branding and marketing it, securing investors, obtaining suppliers and distributors, etc. Partway through the process, the relationship ends; the individuals either all abandon the venture or fight over who can use what to do what.

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Division of Assets/Other Value II

Solution: At the onset of the venture, or as soon as possible, the individuals should discuss each others’ roles and expectations. This should continue to a discussion of who owns or has rights to use assets, contacts, etc. Draft an agreement memorializing the fruits of that discussion, including trade secrets, confidentially, and other related provisions.

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Division of Assets/Other Value III

Complicated part: Many of the venture’s assets will be the product of multiple individuals’ efforts. Detailed discussions on who created or worked on what can clarify disputes early and while the parties involved are most able to work out conflicts amicably.

A lawyer experienced in problems commonly faced by startups and business conflicts can assist you in these discussions, as well as finding ways to resolve them amicably. Assignment of all intellectual property rights from founders to startup Use of restricted stock* to address the early departure of a founder.

This allows the company to buy back stock at a nominal value. *Stock that is not transferred or transferrable until certain conditions are

met

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The Non-Compete Clause I

Issue: You hire me or otherwise share training, techniques, or other information with me. I leave and, with all that new knowledge, make a very good competitor or a good hire for a competitor.

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The Non-Compete Clause II

Solution: Have the employee/individual sign a non-compete agreement, which prevents that person from using the skills or information she or he acquired from you/your business if she or he leaves your business.

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The Non-Compete Clause III

Complicated part: These clauses must balance: (1) the business’s ability to protect its valuable assets with (2) the worker’s ability to work.

The law does this by invalidating “unreasonable” restrictions, based upon the restrictions: Length of time Geographic zone The degree the skills are specialized Etc.

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The Non-Solicitation Clause I

(Similar) Issue: You hire me and share with me your client database and/or I am going to use the good name of your company to network and meet clients, developing good will. Having made myself this network of your clients, I’m going to accept a job at a competitor and take all those clients with me.

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The Non-Solicitation Clause II

Solution: Have the employee sign a non-solicitation agreement, which prevents that person from contacting or otherwise soliciting your company’s clients away from you.

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The Non-Solicitation Clause III

Complicated part: These clauses must balance: (1) the business’s ability to protect its privileged information, (2) the worker’s ability to work, (3) the clients’ abilities to choose their provider in a free market, and (4) competitors’ abilities to compete.

Thus, the law will not enforce overreaching restrictions, which: Restrict all contact to clients, rather than just for competition

purposes Prevent the new employer from any contact with that client Restrict use of publicly-available client bases Etc.

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The Mediation/Arbitration Clause I

Issue: Despite or in the absence of good planning, you and your partner or employee have reached a conflict and cannot move past it.

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The Mediation/Arbitration Clause II

Solution: Add a mediation or arbitration clause to your agreement, requiring you to work out conflicts by involving a third party.

The third party can be (essentially) anyone you agree to—whether it’s a professional mediator or an entrepreneur, professor, trusted advisor, or someone else you both respect. It is easier to identify one or three people at the onset versus during the dispute.

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What can we agree/contract about?

Just about anything. Contracts existed before lawyers did, before even the oldest profession did.

You might consider contracting about: General or specific purposes Who owns/can use what Who does what How fast things need to be resolved/done Who will pay what Who has what duties What law is used Where lawsuits are filed

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What can’t you contract about?

We’ve already discussed some legal limitations on the scope of agreements like Non-Compete and Non-Solicitation Agreements.

What else? Penalty Clauses Illegal Subject Matter Agreements against public policy (catch-all)

But you can use a Severability Clause to save most of your contract, even when you have something that isn’t enforceable.

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cCarthy Law, LLC

Questions?

Questions for Asa Garber or McCarthy Law, LLC?

Suggestions for future topics?

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cCarthy Law, LLC