Business Agreements
Build it.
It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you structure your business and partnership has lasting and often decisive impact.
Commercial Agreements
We routinely review and negotiate commercial agreements with strategic importance such as master service agreements (MSAs) and nondisclosure documents (NDAs). You’d be amazed how many pitfalls there could be in a “template” or “standard” draft agreement from a vendor. We will guide you around those pitfalls with your business goals in mind. Here are just some examples:
Pitfall - Binding MSAs with lengthy terms and no exit options.
We will request the right to terminate the agreement without penalties, or having to prove “material default” by the vendor.
Pitfall - Overly strict conditions for paying out rebates.
We will push back on the vendor’s right to withhold or even cancel rebates, just because you might have committed immaterial breach of the agreement.
Pitfall - Lack of IT service performance standard
You’d want your POS and other IT vendor to commit to limited downtime and prompt response to maintenance request.
Pitfall - One-sided NDA that fails to safeguard your proprietary information.
Be aware of NDAs that impose significant burden on you to protect the vendor’s IP rights, without affording any meaning protection to yourself.
Pitfall - NDA contains a significant liquidated damages provision, exposing you to shocking liability.
Eliminate such provision completely, or limit its application to intentional acts (which we are sure you won’t commit).
Corporate Agreements
We draft foundational corporate agreements like operating agreements, shareholder agreements, subscription agreements and more to suit your specific circumstances. These agreements clearly outline the rights and responsibilities of you and your business partners through various stages of business, covering crucial topics:
Initial and additional capital contributions
If a partner fails to deposit his or her shares of capital contribution into the company account, you should have contractual remedies available. Potential remedies include dilution of his or her shares in the company, increased annual interest (e.g., 10%) on the amount he or she owes to the company, or perhaps more seriously, total forfeiture of his or her shares in the company. You may also craft alternative or additional remedies with attorney’s help.
Who among the partners get(s) to decide when to deposit how much additional capital contributions into the company account is an important topic that should be addressed in the shareholder or operating agreement. You definitely want to avoid the situation where the company urgently needs additional capital contribution (e.g., if the renovation proves more expensive than expected), but is unable to do so due to deadlock among partners.
Day-to-day operational management
You don’t want to lose operational control of your business. Perhaps you have hired a manager, or have a managing partner who oversees the day-to-day operation (so that you don’t have to), but you’d still want to retain the final decision power on significant matters. This can be also achieved by reserving the right to hire/fire managerial personnel at your discretion.
If you are appointed to oversee the company’s daily operation, you’d want the most robust protection from personal liability that is legally permissible, at least so long as you are acting in good faith to serve the company’s interest. For instance, the company should indemnify you against any claims filed by former employee that was fired by you due to performance issues.
Transfer of shares or membership interests
At minimum, you’d want some control over who you are partnering with. Thus, you should at least have a right of first refusal (i.e., the right to be notified of and match the bid if a partner receives an offer from a third party to purchase acquire his her shares in the company). Ideally, you’d want the option to either a. purchase the other partners’ shares in the company at a certain price (or with a certain valuation mechanism); or b. sell your own shares in the company at a certain price (or with a certain valuation mechanism). These exit options are crucial and should be considered before you join the venture.
Sale of the business (cash-out events)
