As any entrepreneur or business owner knows, building a website or online storefront to advertise, promote, or sell goods or services can be a detailed, time-consuming, and expensive process. The goal of attracting even the most discerning consumer on the internet makes those extra hours and expense worth it, especially when general marketing and branding goals include repeated visits, contact, and impressions to finally engage a customer or user. All successful businesses similarly understand that protecting the logos, content, design, functionality and, most importantly, the integrity of the website. An attorney-drafted “Terms of Use” or “User Terms and Conditions” page is extremely important because it provides, among other benefits, a mechanism 1) to prevent competitor copying or intellectual property infringement, 2) to legally bind users of the website, 3) to limit the business liability in certain contexts, and 4) to comply with federal law.

1. Prevent intellectual property infringement.

Valuable dollars and hours are spent building a website for goods or services, but the failure to secure or enforce proprietary intellectual property rules can nullify all of that value. A valid Terms of Use will enumerate the myriad of intellectual property present on the business website, and will make it clear to all users (guests or registrants) that the copying, stealing, scraping, or unauthorized use of proprietary information is grounds for termination of any user account, a claim for breach of contract, and claims of copyright, trademark, or trade secret infringement, and any other remedy available at law to the business. While the deterrent impact of a Terms of Use may be debatable, failing to have a Terms of Use removes any enforcement mechanism for a business owner against a rogue user.

2. Legally bind users of the website.

Having a Terms of Use section on the business website is not required by law in the United States, but consider that it has been (and may solely be) a binding agreement enforceable by a court between any user or abuser on the internet and the business (even if no transaction of money for goods or services occurs). Because the website is the property of the business, businesses may set user standards for use of the site as well as the penalties for failing to comply, including to terminate a user account or ban future use. Having this ability is extremely important for any online business to ensure smooth user engagement and process management.

3. Limit the business liability.

A legally binding contract may include disclaimers against liability – and in certain cases, even where liability would normally be imputed by law. This includes common issue situations like outdated or incorrect marketing materials (especially those quoting prices or fees), governing the interactions between users (especially in the context of harassers or trolls), and updating the features or functionality of applications or other products. Note that by failing to disclaim against liability in these scenarios, a business may become an easy target for traditional lawsuits over small errors.

4. Compliance with privacy laws and the “privacy policy.”

If the site collects personal data that may identify an individual (e.g., a user’s email address, first or last name, physical address, or social security information), legislation like the Americans with Disability Act (ADA), Children’s Online Protection Act (CIPA), and more mandate privacy policies according to these Federal Trade Commission guidelines.

From our experience, while every business and proposition is unique, businesses should consider the following broad issues when either self-drafting or having an attorney draft the Terms of Use:

  • Privacy policy (if collecting personally identifying information)
  • How the user accepts the Terms of Use
  • Account security
  • Intellectual property rights (trademarks, copyrights, licenses)
  • User-posted content and content standards
  • Infringement
  • Social media integration

For more information or guidance on your online business practices, or if you are ready to prepare a terms of use and privacy policy, please call our office at (323) 543-4453 to schedule a consultation and speak with our savvy attorneys.

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  1. Job information.
  • Key information regarding the employee’s role at the company should be the first thing included in any employment contract. This should include the job title, direct supervisor/team reporting to them, and an explanation on how performance will be evaluated.

 

  1. Compensation.
  • The compensation package should be outlined in detail. This should include salary, bonuses, incentives, and information on when and how raises are determined.

 

  1. Benefits.
  • Benefits are not always required but if you decide to provide them make sure to specify the specific benefits provided, such as medical, dental, eye care, life insurance, etc. and what percent the employer pays and what percent the employee pays.
    • Also include information about the 401(k) plan, stock options, and any fringe benefits if offered.

 

  1. Time off, sick days, and vacation policy.
  • Include a detailed account of the time off and vacation policy. Include information about how many paid vacation days are accrued per pay period, whether vacation days increase with long tenure, and explain your expectations regarding sick days, family emergencies, or unpaid leave.

 

  1. Employee classification.
  • Define whether the new hire is an employee or contractor to ensure tax and insurance compliance.
  • Avoid misclassifying your employee as a contractor. Generally speaking, if you are controlling when, where, and how the employee works, they cannot be a contractor. Penalties are harsh for employee misclassification.

 

  1. The schedule and employment period.
  • The contract should include whether the employee is expected to work certain hours and what those hours are.

 

  1. Confidentiality agreement.
  • Protect sensitive information like business trade secrets and client data by having the employee sign a confidentiality agreement within the contract.

 

  1. A technology privacy policy.
  • Clarify what is acceptable regarding the use of social media and email on company property. If you don’t want employees saying anything negative about work on social media, include it in your employment contract or employee handbook.

 

  1. Termination terms and conditions.
  • Explain what is required for either party to terminate the relationship, including the amount of notice required and if it should be written.

 

  1. Requirements after termination.
  • The contract should include any restrictions or mandates on an employee after leaving the organization. For example, including a non-solicitation or non-circumvention policy can help protect your business and its clients. Remember, when it comes to employees that non-compete agreements are per se invalid in California, so use such provisions sparingly.

❑ Business Name(s) and Purpose

❑ Decide which Partner is going to be responsible for different parts of business

❑ Are partners expected to work set hours?

❑ Does one partner plan on working more or less than the other partners?

❑ How much vacation is allowed?

❑ Will this be a full time role for each partner or are partners allowed to conduct other types of business?

❑ If so then what types of business are they allowed to conduct?

❑ List partner cash contributed to business:

❑ List partner property (both physical and intellectual) contributed:

❑ How can this property be used by the business?

❑ Will partners receive a salary? If so how much and when.

❑ If a partner is taking less salary will this be made up in the future?

❑ Do you plan on reinvesting profits back into the business?

❑ If so at what point do you plan on taking out profits?

❑ How and when will profits be divided up amongst the owners?

❑ How will losses be handled?

❑ Decide on ownership splits

❑ Does the partner have the ability to sign contracts?

❑ Can the partner make purchases without consulting the other partners?

❑ What happens if a partner dies or becomes disabled?

❑ What happens if a partner wants to leave the partnership and pursue other interests?

❑ Under what circumstances can a partner be forced to leave the business?

❑ If the partners do not agree how is the final say handled?

❑ Process for bringing on new partners?

❑ Selling the business?

In recent years, there has been a lot of talk about SAFEs and KISSes as alternatives to convertible notes in the start-up and technology community. But what is the difference?  We have put together a simplified comparator to help get you up to speed on the differences between them, so you can better understand your financing options.

 

What is a SAFE?

SAFE, created by Y-combination, stands for a “Simple Agreement for Future Equity”. In practice a SAFE enables a startup company and an investor to accomplish the same general goal as a convertible note, though a SAFE is not a debt instrument.

A SAFE is an agreement that can be used between a company and an investor. The investors, invest money in the company using a SAFE. In exchange for the money, with a SAFE, the investor receives the right to purchase stock in a future equity round (when one occurs) subject to certain parameters set in advance in the SAFE.

Founders love SAFEs, particularly at the pre-revenue stage due to the fact that they are simple and easy to understand, and there is no need for an initial valuation or share price, which is determined at a later date when the company presumably has more revenue

Unlike convertible notes, there is no debt with a SAFE. There is no maturity date either, which means investors have to wait an unspecified amount of time before they can get their hands on the equity they bought, if that ever happens.

Many in the start-up and investment community support SAFEs, particularly in seed rounds. However, many institutional investors and corporate partners are weary of SAFEs due to both their untested legal standing and the lack of security they offer.

 

What is a KISS?

As a response to the perception that SAFEs are biased towards the company vs. the investor, a hybrid has been introduced by 500 Startups called KISS (Keep it Simple Security).

This new hybrid integrates the SAFE with certain elements of a more investor-friendly convertible debt mechanism.

There are two types of KISSes, the first is a convertible debt structure.  This option accrues interest at a rate of 5% that can be paid back by the company in cash, and has a maturity date of 18-months. It provides an automatic conversion to stock if the company raises a qualifying price round ($1M). At the point of maturity, the holder may convert the underlying investment amount, plus accrued interest, into a newly created series of preferred stock of the company.

The second type is an equity financing structure. This is option does not accrue interest, but does have a maturity date of 18-months.  It is more of a middle ground between the SAFE and Convertible Debt. Just like the KISS convertible notes, they automatically convert into equity at the next round of equity financing, but only if the financing is for $1 million or more.

Have questions, or need help navigating your financing options?  Give us a call and set an appointment up, we are happy to help you further explain your options and guide you in the right direction.

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