As your business grows, you’ll find yourself faced with bigger concerns than the basic worries of getting your business off the ground. And with these new challenges come new concerns for protecting your enterprise. Every new opportunity also presents the potential for risk if you don’t take proper precautions — including being prepared with partnership, employee and contractor agreements.
When you’re hiring employees or contractors for your fledgling company, you may want them to dive right in and help with the mountain of tasks you have to handle. But there are important things that need to be sorted out before someone starts working for you. And if you have chosen to team up with a cofounder, the same principles apply.
Employee and contractor agreements
While it might seem like a natural assumption that all work created by people you pay would belong to you and your company, the law isn’t so clear. In the absence of written agreements, you run the risk of not having ownership of the work created by your contractors or employees should they leave the company.
Before you allow new hires to produce any work, make sure you have an employee and/or contractor agreement that outlines who owns the work created, and have everyone who works for you sign it.
Some agreements are more stringent than others, dictating that even work done in off hours is owned by the employer, precluding employees from having their own side ventures. Whether you want to go to that extent is a determination you’ll have to make for your own company.
Also, make sure you have an attorney review your contract. Don’t simply grab a template online. Employment law varies state by state, and you can’t afford not to have this contract be air-tight.
For those who go into business with one or more partners, you also have to consider protecting the future of the business from a potential future dissolution.
It’s best for you and your partners to sit down early to hash out the details and arrangements of your business. You should have a co-founder agreement in writing that outlines things like ownership and equity in the event of a business divorce. It may be a tough topic, especially in the honeymoon phase of your partnership, but it is a crucial conversation to have. Think about it as a prenuptial agreement for your business marriage.
Intellectual property and non-disclosure agreements
Eventually, you’ll probably arrive at the stage where you’ll be talking about and pitching your business to others — for example, at a trade show or investor meeting. While you might want to talk up your company and product to anyone who’ll listen, it’s best to use a little discretion in these cases.
Saying too much about your product or invention can be considered a public disclosure, which can create a problem later if you haven’t already filed for the requisite intellectual property protections.
And that’s without considering the possibility that someone could potentially steal your idea to create a copycat product.
Thus, if you’re going to talk about your product in a public setting, make sure those you’re speaking to have signed a non-disclosure agreement (NDA). If an NDA isn’t an option, stick to generalities when discussing your ideas and processes; tell people enough to let them know what you do, but not enough that they could replicate it.
Moral of the story: Handshakes are for the movies, and only proper written agreements will prevent headache and heartache. Onward!
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.