Clauses to look out for in Your Technology Contracting Agreement

Clauses to look out for in Your Technology Contracting Agreement

The crux of a contract/agreement is the fact that it sets out the obligations, responsibilities, and expectations of parties to the contract, and governs the relationship between the parties, including setting forth the consequences of a breach and how conflicts may be resolved. Despite the fact that there’s been a call for the minimal use or total elimination of legal jargons in contracts, a typical tech contracting agreement should contain some of the following elements: 

  1. Scope of work

Every contract should set out the scope of work for which the employee is employed to perform. It should reflect and be clear as to the specifics of the work you’re employed to do. The scope of work clause is the most important section of the contract because it provides the details of what you’re employed to do. The scope of work would cover your job description, your deliverables and the specific objectives the project you’re employed to work on.  The scope of work clause may also cover the estimate of length of contract, including a timeline for project milestones, with details as to what each milestone actually involves, and the dates when the milestones should be delivered. Why it’s important to look out for this clause is because its absence could give your employer the leeway to burden with workload that could be outside your scope of work. It is also possible that the absence of this clause can limit ptogesssion and recognition since you do not have deliverables and milestones clearly spelt out. 

It is possible that along the way  they could be changes to your scope of work. It’s good practice to given your employer one free revision over your scope of work, and subsequently charge them for other revisions. 

  1. Term and Termination  clause 

A tech contracting agreement should specify the date when the agreement begins and when it ends. The agreement could also mention the conditions that may warrant an extension of the term of the contract. Your tech contract should also outline the events that would lead to a termination between both parties. It should also stipulate the length of notice required for a termination, and what would be obtainable in the absence of the required notice.  

  1. Payment/remuneration 

Your tech contract should contain the salary as negotiated between you and the employer, and the mode/manner of payment. Where the employment is of such nature that your payment/remuneration would be based off on key performance Indicators, it is important to ensure that objectives or targets needed to meet these key performance Indicators are clearly stated and defined. 

  1. Limitation of liability

A limitation of liability clause helps to manage risk in a contract. In a tech agreement, it limits the amount one party has to pay to the other party in case the party suffers loss due to unforeseeable damages in the technology, leading to the breach of contract. The clause generally has two components: Liability Cap and Exclusion of Liability. This clause is important and should be present in your tech contracting agreement. Parties would usually agree on the amount of maximum liability attached in case of a breach of contract. It is important that this clause is not so generic and should specify which liability it may exclude due to consequential damage. 

  1. Restrictive clauses and covenants 

It is very common to find restrictive clauses like non-compete and clauses governing intellectual property in a tech contracting agreement. Restrictive clauses become operative after termination of the employment and they exist to protect the business and clients of the employer. Sometimes, these clauses can impact future job opportunities in situations where you are prohibited from working with competitors in the same ecosystem for certain years. It is advisable to renegotiate some of these terms, where possible so they don’t hamper your progression in your field. 

Intellectual property rights are typically contained in all types of contracts. For a tech contract, most of the rights are kept by the employer, but there may be certain rights granted to the employee under the technology contract. An employee would usually sign a non-disclosure agreement. While this is good practice, it is important to take steps to ensure that your right of innovation and intellectual property rights are safeguarded under your tech contracting agreement.  

  1. Force Majeure clause

A Force Majeure clause (French for “superior force”) is a provision that allows a party to suspend or terminate the performance of its obligations when certain circumstances beyond their control arise, and makes performance inadvisable, commercially impracticable, illegal, or impossible. It is important that this clause is included in your agreement, with the critical indicators or circumstances clearly defined. 

Legal Contracts That Every Startup Must Have

Legal Contracts That Every Startup Must Have

Contracts are an essential part of everyday business. Contracts are basically agreements that govern the relationship between two or more persons. We enter into agreements when we decide to patronize services or products. There is an agreement among parties when we consent to abide by certain rules when making use of services/products. While it is important that businesses have structures in place that help them achieve their mission and visions, It is equally important that they spell out their duties, and liabilities, if any, to avoid dealing with legal issues in the near future.

We have outlined a number of essential contracts that businesses should have in their arsenal to avoid dealing with foreseeable/avoidable legal battles. This list is by no means exhaustive:

  1. Non-Disclosure Agreement (NDA)

An NDA, also known as a confidentiality agreement, is a contract between parties that outlines confidential information that one of the parties or both parties wishes to share with the other or themselves for certain purposes but wants to restrict such confidential information from being shared with other people. Among other things, the contract goes further to state the permissible circumstances under which such confidential information may be disclosed. It also states the penalties that would apply in situations where the contract is breached. More often than not, the contract imposes an obligation(s) on the receiving party of the confidential information to take measures to ensure that the confidentiality of the information is preserved. The contract would also spell out what material/information that is not of a confidential nature.

The importance of an NDA for any business cannot be overstated. Before any commercial/business conversations take place between your business and an outsider, it is imperative to have an NDA signed. It protects the interest of the disclosing party to the agreement, such as his ideas and intellectual property. The confidential information of a business is what keeps a business unique and competitive. Parties can also feel a level of confidence that any confidential information shared is protected. It instills a level of trust and confidence between parties and aids with negotiations.

  1. Employee’s Agreement

Upon employment, an employee is usually mandated to sign a contract of employment. This is usually referred to as an Employment contract. An employment contract is an agreement between employer and employee. It specifies an employment term, the compensation and benefits, and a non-compete clause. It also incorporates the terms and conditions of employment. When you employ a person, there are certain legal obligations expected of an employer. One of your first duties as a new employer is to ensure you comply with employment contract law. An employment contract is often a way that outlines how you intend to meet and satisfy the legal obligations expected of you as an employer. Having an Employee’s Agreement as a business owner helps to fulfil legal requirements imposed on employers. By outlining the conditions that may lead to the termination of employment, a contract of employment helps businesses to avoid frivolous actions that may arise from the termination of employment.

  1. Proprietary Rights Protection Agreement

Your business ideas, copyrights, patents, software and financial information are your crown jewels. They make your business valuable and lead to the general profitability of your business. This information can easily be copied or used by someone else if you do not keep them confidential.It’s often the value of a business’s Intellectual Property (IP) portfolio that investors and venture capital firms are evaluating.This factor (the business’s IO portfolio) helps attract investment from venture capitalists and other capital sources. Having said this, the need to protect a business’s ideas and proprietary rights is second to none. A business should by all means reasonably ensure that its proprietary rights are protected. A proprietary rights protection agreement is an agreement concerning confidentiality and appropriate handling of the employer’s commercially valuable information, compliance with relevant security rules and policies, and protection of the employer’s intellectual property assets.They help to protect the employer’s intellectual property assets

  1. Shareholder’s/Founder’s Agreement

It is very common that a business may not be founded by just one person. To avoid any form of conflict that could arise among the founding parties, it is advised that businesses have a comprehensive Founder’s agreement. This agreement defines the relationship of the founders, states the conflict-resolution clause, and elucidates the rights, roles, responsibilities, and obligations of each founder.

The Shareholder’s agreement on the other hand is used for when the business decides to allow private equity/investment into its affairs. It is more of an agreement between shareholders in a company. It regulates the relationship between shareholders of the business and the business itself. It also determines the rights of shareholders and defines when they can exercise those rights. Those rights can include shareholders’ right to transfer shares, right of first refusal, redemption upon death or disability, The Agreement may also include situations when the business may exercise a buyback option of the shares allotted, and define how important decisions will be made in the business. This agreement helps to ensure there is a common understanding of shareholders’ expectations of the business.

Both agreements help to ensure that the parties have a similar understanding of what their expectations should be, and above all, when there’s a conflict or a budding conflict, recourse can be made to the terms of the agreements.

With the excitement that comes with founding a company and solving problems for users, it is easy for founders to forgo the place of a founder’s agreement until things begin to go South. Having a co-founders agreement does not mean there is an anticipation of a conflict, it just helps to regulate what should happen in the co-founder relationship.

Businesses should prioritize having these aforementioned contracts executed in order to avoid legal battles in the future and to secure the business’s future.

What Legal Innovation Is About And Why You Should Care

What Legal Innovation Is About And Why You Should Care

It’s doubtless that the term ‘legal innovation’ has resounded over again in the past few years in the legal industry. Clients are demanding innovation and law firms are being mandated to ‘innovate’. Given the dynamic shift in customs and transformation across the globe, clients would no longer accept work on the same basis as they did ten (10) years ago. Generally, innovation would be defined as a change or the introduction of something new in customs, rites, etc. Legal innovation is a change made to a legal practice that results in the lawyers delivering better value to their clients. The mere use of technology in an organisation does not amount to innovation. But the use of technology and its related tools in a way that improves client’s value is innovation. Innovation is centered around delivering better value and service to clients. Legal innovation is all about embracing a culture of change, cultivating engaged employees, using technology and creating loyal clients.

If lawyers are to remain relevant in this emerging landscape, they must have a firm understanding of why innovation in law matters—an understanding that goes far beyond an appreciation of the hype. Legal innovation has evolved to be crucial. Firms that want to be taken seriously by their clients should accept the need to become business-oriented, digital, and focused on providing added value to businesses. The reason why lawyers should care about legal innovation is that it has the potential to reshape the legal profession for the better. It has the potential to enhance a lawyer’s productivity, improve service delivery, and offer solutions that are client-centric while reducing overhead costs.

Digital transformation is the new normal, and law firms need to get on board if they want to remain competitive and relevant. By partnering with tech-savvy experts and specialists dedicated to legal innovation can law firms truly hope to succeed in providing the levels of innovation necessary to remain competitive in today’s digital world.

The following are key considerations for law firms when developing an innovation strategy:

  1. Determine a well-known client complaint. It’s important to include clients in this discovery process in order to get the proper perspective.
  2. Determine a variety of choices to assist alleviate the pain points before deciding on the best one to pursue. Importantly, some of these alternatives may entail simple process modifications rather than costly technological deployments.
  3. To widen the perspective, use a multidisciplinary approach to brainstorming. Don’t be scared to include “non-lawyers” in the discussion.
  4. Obtain the appropriate solution validation. Don’t assume that everyone will like the answer you’ve come up with. Iterate after receiving input.
  5. Ascertain that you see the best option through to completion. The focus of gatherings like “hackathons” is much too frequently limited to idea creation. The value comes from the solution’s effective execution, not from the concept itself.
  6. Ascertain that the initiative has a KPI. To guarantee that success is producing value, there should be a quantitative way to assess success.

For every legal practice, true innovation is a significant competitive advantage. Recognizing that the art of innovation must be ingrained in the company’s culture rather than left to circumstances can aid in success.

Smart Contracts Are Still Contracts, But With An Extra Layer of Security.

Smart Contracts Are Still Contracts, But With An Extra Layer of Security.

A contract is a document/agreement, usually binding legally, between two or more persons that set out and governs the duties, rights, and relationship of the parties to the agreement. The most common type of contract is the traditional written contracts which are manually signed by the parties to the agreement. Digital transformation across the globe has usurped the traditional means of doing things. Along with this transformation comes the birth of innovations, one of which is a smart contract. Smart contracts are self-executing contracts with the terms of the agreement between parties being directly written into lines of code.Smart contracts render transactions traceable, transparent, and irreversible. They are computer programs that automate the enforcement of terms when predetermined conditions are met. Traditional Contracts, on the other hand, are sets of agreed-upon terms which are enforceable by law and are described in a natural, human language.

How smart contracts work.

Like conventional contracts, a smart contract has all the necessary elements of a valid contract: offer, acceptance, consideration, and intention to create legal relations. The main difference between traditional and smart contracts is the necessity of a human third party which is usually present in a traditional contract. Traditional contracts require the third party like a lawyer or notary to attest to its validity. A smart contract runs on the blockchain platform and does not require a third party to authenticate it. Not requiring third parties to authenticate smart agreements help parties to save time and money. There are essentially three objects in a smart contract – the signatories, who are the parties involved in the smart contracts that use digital signatures to approve or disapprove the contractual terms; the subject of agreement or contract; and the specific terms.

Contracts are strictly construed and changes in the wording of an agreement by any party can have important consequences on the final agreement. Being stored in a blockchain, smart contracts are immutable, which means that they cannot be changed once they have been entered, and are traceable. This feature of smart contracts provides an extra layer of security and prevents contracts from being tampered with. Smart agreements are timestamped and distributed across many nodes in the network. The cryptographic protection of blockchain technology allows an unprecedented level of confidentiality, especially if the contract is stored on a private rather than a public ledger. This helps to prevent unwanted modifications to the terms of the contract once they have been entered into the system.

Generally, Smart contracts allow for fast, transparent, secure and authentic agreements between parties. Ethereum is a good example of a blockchain that supports smart contracts. Smart contracts are signed with the use of a digital key. A digital key is a secret key known only by the signer and it prevents hackers from compromising the terms of the contract.

How safe is a SAFE Agreement for Startups?

How safe is a SAFE Agreement for Startups?

In a bid to scale their business ideas and operations, startups require funding at different times. There are typically five stages of funding required for a startup to become an established business. They are Seed Funding, Angel Investment Funding, Venture Capital Financing, Mezzanine Financing and Initial Public Offering (IPO). SAFE agreements are financing contracts that may be used by a startup company to raise capital in its seed financing rounds.

A SAFE agreement has evolved to become one of the main instruments for early-stage funding. A SAFE (simple agreement for future equity) is an agreement/contract between an investor and a company that gives the investor the right to receive potential equity of the company on certain triggering events, such as an additional round of financing or the sale of the company. A SAFE agreement provides potential equity to an investor in exchange for immediate cash to the company. The shares to be given to the investor are not valued at the time the SAFE is signed and actual valuation of the shares is deferred until the advent of the triggering events as outlined in the SAFE agreement. Unlike a convertible note, which is also one of the ways through which startups raise seed capital, a SAFE is not a loan; it is more like a warrant. In a SAFE agreement, no interest is paid, and a maturity date more often than not does not exist. Until the happening of a conversion event outlined in the agreement, such as an additional round of financing or the sale of the company, a SAFE remains outstanding.  

A SAFE is similar to a convertible note as both instruments provide potential equity to an investor. However, unlike a convertible note, a SAFE is not a debt instrument. A SAFE  is relatively easy to create and implement, does not accrue interest as a loan does; and offers flexibility in the way a company raises funds. There could be situations where the triggering events as defined in the SAFE agreement aren’t activated. In such situations, the SAFE will not be converted. For instance, if a company in which you invested makes enough money that it never again needs to raise capital, and it’s not acquired by another company, then the conversion of the SAFE may never be triggered.

The four types of SAFE notes include:

  • A valuation cap, but no discount
  • A discount, but no valuation cap
  • A valuation cap and a discount
  • No valuation cap and no discount

What are the benefits of SAFE agreements to startup companies ? 

  1. Control : Without the repayment obligations and maturity dates looming over the startup, and so founders have more freedom and flexibility and good time to ensure that  their vision and dreams materialize as intended.
  2. Simplicity : Since SAFEs are so simple, there are fewer terms to negotiate, making everything that needs to be discussed clear and concise. In fact, the only things that really need to be negotiated are the discount rate and the valuation cap.
  3. Ease of entry and startup’s comfort: As an early stage investor, a SAFE note is an easy way to invest in a company post the without the paperwork and effort of a convertible note. Also, convertible notes usually come with obligations that might hamper future investment from other parties (e.g., interest payments, investor subordination [debt gets paid before equity], etc.).
  4. Accounting: Like other convertible securities, SAFE notes end up on a company’s capitalization table.
  5. Conversion to equity: Investors can change their investment to equity later. The date of conversion is not predetermined, but it can happen when an equity round is raised and preferred shares are distributed.

Challenges of SAFE agreements

  1. Risks to investors: SAFE notes are not an official debt instrument. This means there is a chance they will never convert to equity and that repayment is not required.
  2. Incorporation requirement : A company must be incorporated for it to offer SAFE notes.
  3. Distribution of dividends: Dividends are not to be paid to SAFE note holders the way they are paid to common shareholders.
  4. Lower returns: Accruing no interest on a short-term investment is not a big deal. However, if you hold an investment for over a year, it could make a huge difference. Accrued interest gives note holders a greater return on their investment and creates an incentive for a company to close an equity round.
  5. No minimum requirement: With SAFEs, there is no minimum requirement for an equity round to go into conversion. However, a minimum can actually be helpful because it lends the round legitimacy and value. It means that a SAFE note can be re-adjusted on a whim and that a smaller investor can negotiate a better deal and compete.