Startup Contracts

Legal tips for a startup exit strategy and when you don’t have exit plan in your legals or any legals at all

Photo by Belinda Fewings on Unsplash

Legal tips for a startup exit strategy and when you don’t have exit plan in your legals or any legals at all

If you're working with your co-founders and you don't have an exit plan in your legals or any legals for that matter, you can take steps to sort out your exit strategy from now. 

And, yes, you can take these steps before you see a lawyer. 

Below are tips to help you with your exit strategy so you can start your brand new chapter sooner.

As always, get advice if you are in doubt.

In a hurry? Jump ahead below. 

Founders agreement & Shareholder Agreement

Usually if there is an exit plan, it can be found in a founder’s agreement and/or shareholder agreement. 

Exit terms usually cover at a minimum: 

  • Share treatment on exit e.g. sale/ability to keep shares
  • Notice period 
  • Confidentiality; and 
  • Intellectual property

If you don’t have these terms in a founder or shareholder agreement or any other agreement, you can prepare non-binding terms like the one below, before you see a lawyer. 


Non-binding terms 

Non binding terms are what parties have informally agreed about  a topic and aren’t legally binding until they are in contract form and executed by both parties. 

The idea with non-binding terms is that you’ll save more legal costs if you can negotiate most exit terms informally with the other parties BEFORE you speak to a lawyer. 

The example below is for a co-founder leaving a company with some sample terms. 

Regardless of whether you use the ideas in the sample below, if action needs to be taken, be sure to document: 

  • The party to take the action
  • What they need to do with sufficient detail; and 
  • The time frame to complete that action 

Now, onto the template. 

Non binding exit terms sample

 Company/Business Name & ABN 

 Parties: [insert names]

Subject to both parties obtaining legal advice, below are the draft terms for your/my/our proposed exit. Both parties understand and agree that the terms will not be legally binding until they are formalised in a legal agreement that is prepared by a lawyer and executed by all parties.  

The items below give you some tips on how to start but they aren’t exhaustive. 

  • [shareholder name] to sell x shares back to [insert company name]. 
  • [director/employee anime] to provide a handover of x, y, z by …. 
  • [director name] to resign from director role by [insert date] and change to be recorded within ASIC within 28 days of formalising this agreement.  
  • [company name/party name] will own intellectual property. 
  • [director name] to receive $x for initial capital contribution. 
  • [director name] to remain director of the company. 
  • Confidentiality: both parties agree not to disclose the exit terms other than the way described in the exit notice below. 
  • Mutual release: both parties agree to mutually release each other from any liability in connection with [insert business/company/project name]. 
  • Exit notice: both parties agree that notice of [insert co-founder’s name’s] exit will be by [insert name] OR both parties agree not to disclose the exit unless asked by customers and in this case the response will be ‘[insert name] has moved on for another opportunity but its business as usual here, and [insert name] will now be helping you. 
  • Social media: co-founder name agrees to provide all social media login access details (if only one of the parties was managing accounts). 

While the heads of agreement document key exit terms, the detail is found in the the legal document drafted by a lawyer and this brings us to the deed of release.


Deed of release

A deed of release is the formal legal document that’s drafted and used to document exit terms. 

Note that sometimes exit terms may be in found in an agreement which might be called something else, like terms of settlement or a termination agreement.

The title is not too important because they all cover the same topic. 

However, a deed is common and used over an agreement because it has a longer enforcement period if parties breach the terms. 

I’ve written about deeds before, here and here and here and in a few other articles on this website if you want to read more about them. 

A deed of release sets out both parties exit terms and provides comfort to both parties that each party won’t take legal action against the other. 

For this reason, and to be fair, exit terms should be mutual. 

That is, both parties release each other from liability and both parties agree to keep each other’s information confidential amongst other mutual terms.

Now, the key reason for having your exit terms as a deed and not an agreement is because you'll have a longer enforcement period. 

You can read more about the difference between deeds and agreements here


Limitation period 

There’s a limitation period to make a claim under a contract and remember a contract can be written, verbal or a hybrid of both. 

While the limitation period is long, it’s a good idea to act fast while contract terms are fresh and also so you can move on and begin your new chapter. 

In Australia these are the limitation periods by state. While there may be some small scope for an extension in some instances, don’t risk it. 

  • NSW: 6 years based on s. 14 Limitation Act 1969 (NSW)
  • QLD: 6 years based on s. 10 Limitation of Actions 1974 (QLD)
  • VIC: 6 years based on s. 5(1) Limitations of Actions Act 1958 (VIC)
  • WA: 6 years based on s. 13 Limitation Act 2005 (WA)
  • SA: 6 years based on s. 35 Limitation of Actions Act 1936 (SA) 
  • TAS: 6 years based on s. 5(3) Limitation Act 1974 (TAS)

In this article, we’re talking about a specific situation where the parties don’t have an exit strategy in place in existing legals or if they do have any existing legals, they simply don’t cover exit plans. 

Please note that if you do have a deed in place or agreement in place that covers the other aspects of the working relationship then the normal enforcement periods apply: 6 years for an agreement or longer for a deed (12 or more years in Australia depending on what state you are in). 


Bringing it all together 

Check any existing agreements that cover your exit strategy. 

If you don’t have an exit plan covered, prepare non-binding terms then speak to a lawyer to get those terms documented accurately. 

I wish you every success in your new chapter! 

Do you have questions or comments ? Be sure to leave them below.





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What is intellectual property, who owns it and how to protect it
Startup Contracts

What is intellectual property, who owns it and how to protect it

Photo by Patrick Tomasso on Unsplash

What is intellectual property, who owns it and how to protect it

Updated: 27 January 2021

It’s important to know what intellectual property (IP) is and who owns it so you can protect it.

Here’s a guide. 

IP meaning

Here’s what I mean by intellectual property - in simple terms, it’s an idea or proprietary knowledge.

This may include an invention, trademark, design, brand or the application of an idea. The idea has to be new or original. 

Some IP examples

Below are some examples of IP, while the list is long, it's not exhaustive:

  • algorithms; 
  • business names including domain and and domain names; 
  • circuits including circuit layout rights, integrated circuit, circuit layout or semiconductor chip layout or design, plan, drawing or design, or scientific, technical or engineering information or document;
  • charts and manuals including data and logic flow charts, user manuals, data structures;
  • computer program; 
  • content and designs for all websites and apps including written material, photographs, graphics, music, audio and video; 
  •  copyright or other rights in the nature of copyright subsisting in any works or other subject matter in this Schedule;
  • databases and database contents;
  • drawings and designs including but not limited to computer generated graphic symbols; 
  • e-commerce systems; 
  • invention or discovery;
  • logos; 
  • object code; 
  • patent or application for patent, right to apply for patent or similar rights for or in respect of any other Intellectual Property; 
  • product names; 
  • screen displays including but not limited to graphic user interfaces, web pages;
  • search engines;
  • software including text based HTML code;
  • source code;
  • trade secrets including but not limited to know-how, or right of secrecy or confidentiality in respect of any information or document or other Intellectual Property referred to in this Schedule.

Who owns the intellectual property

Employees vs contractors

Intellectual property created by an employee for an employer is owned by the employer, even if there’s no written or verbal contract in place.

As for contractors, the opposite is true. It’s the contractor that owns the intellectual property unless a written contract states the principal (entity that hired the contractor) is the owner.

What you need to protect your IP

For hires, a written contract is the best way to protect precious business intellectual property - and that applies for both employees and contractors. 

Even though a business automatically owns employee created IP, its important to let the employee know this to avoid any IP breaches. 

Transfer of IP deed or agreement

In many cases, contractors are also asked to sign a transfer of IP deed or agreement, this provides extra assurance to the employer and any investors (in addition to their employment or contractor agreement) that the IP has transferred and is owned by the business. 

Usually an IP assignment deed is the preferable format for an IP assignment because you have 12 years to enforce a deed compared to 6 years for an agreement. We wrote about the difference here

For your patents and designs, avoiding publicity is important

Patents + designs - avoid publicity

For patents and designs, beware of publishing your patents or designs if you are thinking of protecting your patent or design rights and have not applied for IP protection yet. 

Practically this means not posting about it on social media, presenting on it in public or disclosing it in trade journals. 

If you need to disclose your patent or design, a non disclosure agreement or deed is a good idea to protect your IP.

As always, get advice if you are in doubt.

Do you have questions or comments about intellectual property? Be sure to leave them below. 





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A guide to who prepares freelancer & MSA contracts & what's covered
Startup Contracts

A guide to who prepares freelancer contracts & what’s covered

Photo by Jose Escobar on Unsplash

A guide to who prepares freelancer contracts & what's covered

27 January 2021

As a freelancer, you’ll likely work with a mix of businesses - some small and some large.

So, who prepares the contract terms? You ? or the business your'e working with?

Here’s a guide. 

Master Service Agreement (MSA)

If you are working with a larger business, you’ll likely receive a contract from that business outlining the work you’ll complete, sometimes its called a master service agreement (MSA). 

This agreement covers the products and services you will be delivering. 

If you receive an MSA, it's a good idea to have it reviewed by a business lawyer. 

Below is what's usually covered: 

  • project start/end date 
  • product/service description 
  • fees
  • supplier code of conduct (if any) 
  • fees , expenses and payment
  • jurisdiction - the law that will apply e.g. NSW, Switzerland etc
  • record keeping & audit rights
  • transfer of IP rights
  • insurance
  • Indemnity 
  • liability limitation 
  • termination & consequences
  • confidentiality 

As a small business you'll want to pay special attention to payment terms as sometimes these can be quite long and onerous on small business cash flow. 

Ideally, you'll want payment terms that are 30 days or less wherever possible. 

Small and medium businesses

Small and even medium sized businesses may be happy to accept your freelancer contract terms (i.e. if you have already had them drafted beforehand).  

So what goes into your freelancer contract terms? Below is an idea of typical terms. 

Freelancer contract terms

Below are the typical key items in a freelancer contract:

  • product/service description 
  • term of contract
  • client responsibilities
  • fees & payment terms
  • expense reimbursement
  • late fees
  • intellectual property
  • warranties
  • indemnity for third party claims - for protection from client’s breach of a third parties IP rights
  • liability limitations
  • dispute resolution 
  • termination & termination consequences
  • confidential information 
  • marketing & promotions - ability to promote your work to add to your client portfolio 
  • relationship clause - clarify its not an employee/employer relationship 
  • subcontracting - ability to subcontract (if this will occur). 

Freelancer contract terms

Do you need to have your own contract terms prepared?

Ideally yes, because that way you can be prepared for situations where another party does not have contract terms ready and you can set your work terms clearly. 

I have worked with clients that have used their own terms in some instances and when working with larger clients, have used the larger businesses' terms. 

And, if you are going to use terms prepared by the other party, it's always a good idea to have them reviewed by a lawyer as well to make sure they are fair. 

How to display your freelancer contract terms 

How should you display your contract terms?

You may attach the terms to your invoice and make reference to them in the invoice for example, on top of the invoice you can write ‘by paying this invoice you agree to our terms over page.'  

Do you have questions or comments about freelancer contract terms? Be sure to leave them below. 





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A guide to using e-signatures in Australia
Startup Contracts

A guide to using electronic signatures in Australia

Photo by Kelly Sikkema on Unsplash

A simple guide to using e-signatures in Australia

Updated: 29 January 2021

The business case for using e-signatures in Australia is a simple one - they save costs, time and are easy to provide.

So are e-signatures valid ?

Rest assured, e-signatures are valid in Australia because of the Electronic Transactions Act 1999 (Cth).

In a hurry? You can jump ahead below. 

Electronic Transactions Act purpose 

The Electronic Transactions Act 1999 (Cth) is the reason why  electronic transactions are possible; this legislation promotes confidence in the use of electronic transactions. 

Below is a guide for how to use e-signatures in Australia. 

E-signature requirements

You'll need identification, reliability and consent to use an e-signature: : s. 10 Electronic Transactions Act 1999 (Cth). 

We'll go through these below.

Identification

A person’s signature will be valid if there’s a method that’s used to identify the person and to indicate their intention.

Reliability

The method used to identify a person must be reliable. 

To meet this requirement, signature software providers like HelloSign ask the person signing to enter their email address, this email address identifies the person that’s e-signing and satisfies the reliability criteria.

Consent

The person you are sending the e-signature to must consent to receiving it. This will not be difficult where you have received a request via an e-signature platform from the person who will be receiving your e-signed document.

Time of signature 

Generally, the time of the signature is taken to be the time when both of these events occur:

  • the recipient receives the signed document; and
  •  becomes aware that the e-signed document has been sent to them: s. 14A Electronic Transactions Act 1999 (Cth).

When to use e-signatures

You can use electronic signatures on a range of documents, below are some examples: 

  • customer order forms
  • client agreements
  • NDA’s
  • sales agreements; and
  • terms and conditions of sale 

When to avoid e-signatures

You should avoid using electronic signatures in these cases: 

  • where a document requires a witness to your signature 
  • any deed regardless of your state - you can read about signing deeds here.
  • powers of attorney 
  • wills, codicils and other testamentary instruments (they are excluded from the Electronic Transactions Act and must be notorised per the Succession Act 2006 (NSW).
  • filing of certain documents for legal proceedings in certain states and territories
  • certain documents for credit related services per the Consumer Credit Protection Act 2009 (Cth); and
  • official Commonwealth documents like passports. 

Why deeds should not be e-signed

While we’ve gone through signing deeds in detail here, below are the common objections from lawyers about certain formalities not being met:

  • witness - you need a witness for deed execution; and
  • paper - a deed must be printed on paper, parchment or vellum. While many argue that a soft copy deed may not meet this requirement, others argue if it's printed later, the common law requirement for paper is satisfied. 

My opinion - even if there is a common law argument, its best to avoid the legal headache and avoid e-signatures for deeds.

Addressing lawyers objections (based on the Corporations Act) 

Below is what section 127 of the Corporations Act 2001 (Cth) says about director signatures.

CORPORATIONS ACT 2001 - SECT 127

Execution of documents (including deeds) by the company itself

(1) A company may execute a document without using a common seal if the document is signed by:

(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.

(2) A company with a common seal may execute a document if the seal is fixed to the document and the fixing of the seal is witnessed by:

(a) 2 directors of the company; or
(b) a director and a company secretary of the company; or
(c) for a proprietary company that has a sole director who is also the sole company secretary—that director.

(3) A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2). 

(4) This section does not limit the ways in which a company may execute a document (including a deed).

Some lawyers are apprehensive about e-signatures because of [2] above; they picture a paper document that has a seal affixed to it so assume that [1] above is also referring to paper. 

For the lawyers that are apprehensive, you may agree upfront with them:

  • a document may be e-signed under section 127; and
  • that you will print the document after its e-signed.

 Below we cover situations where an agent signs on a company's behalf.

Agents

Below is what the Corporations Act says about agents signing on behalf of directors, for example, when a director delegates to a worker signing on their behalf. 

CORPORATIONS ACT 2001 - SECT 126

Agent exercising a company's power to make contracts

(1) A company's power to make, vary, ratify or discharge a contract may be exercised by an individual acting with the company's express or implied authority and on behalf of the company. The power may be exercised without using a common seal. (2) This section does not affect the operation of a law that requires a particular procedure to be complied with in relation to the contract.

The principal should confirm with the other party that an agent will e-sign on their behalf and this should eliminate the concern about identity and consent criteria being met.

Where to sign

Below are some approaches that lawyers take for signing legal documents. Be sure to agree upfront the other party's preference. 

Option 2 is more practical for longer documents with multiple attachments. 

Option 1 

Sign every page and witness some pages. 

Option 2

Sign some pages as indicated, and for annexures, sign the first and last page of each annexure.

Key e-signature tips

Below are some key tips for using e-signatures: 

  • agree with the other party to use e-signatures
  • notify the other party if an agent will be e-signing (not the director(s);
  • agree the pages to be signed e.g. all pages or as indicated + first and last pages of each annexure.

As always, get advice if you are ever in doubt about how to use e-signatures.

Do you have questions or comments about using e-signatures? Be sure to leave them below. 





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Balance of probabilities meaning
Startup Contracts

Balance of probabilities

Balance of probabilities

10 December 2019

You've likely heard of the standard of proof 'beyond reasonable doubt' and possibly through TV shows. It's basically a standard of proof for criminal cases. 

Well, what about the 'balance of probabilities'?

The balance of probabilities simply means that disputed facts are compared to determine which set of facts are more likely to have occurred. 

A fact is proved to be true on the balance of probabilities if its existence is more probable than not.

Why does the balance of probabilities matter?

If you are ever involved in a civil matter (e.g. related to business or employment) that is likely to go to court, the balance of probabilities will be the standard of proof that the court will apply. 

This means, you will need to convince the magistrate that your version of events is more likely to be correct over the other parties version of events.

Some even put it this way: you'll need to convince the magistrate that your version of events is 51% likely to be the case over the other party with the losing 49% likelihood.

Got questions or comments about the standard of proof in a civil case? Be sure to leave them below.


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Startup Contracts

How to use a founders agreement at your startup

How to use a founders agreement at your startup

Updated: 8 December 2019

Your founders agreement describes how you and other founders will work together to launch and grow your startup.

So what's the benefit of a founder's agreement ?

For one, you can set clear expectations and minimise disputes. We'll go through some other's too. 

Why should I choose a founders agreement over an employment agreement ?

Firstly, unlike an employment agreement, all co-founder’s at your startup sign your founders agreement.

Also, you and your co-founders are bound by the same terms.

Your startup may use a founder’s agreement instead of drafting individual employment agreements.

Why ? because it cuts out the cost of multiple employment agreements.

Your co-founder's roles will change as you test and and tweak your offerings for your customers.

So, what information should I include about roles ?

You will need a general idea of each founder’s functions.

Further, you will need flexibility so that your founder's agreement can allow for changes to founder roles based on business needs.

So how should your founder's agreement be structured ?

General duties and responsibilities are outlined in the body of your agreement while your role descriptions are usually at the end.

Keep in mind that you will also need to customise your founders agreement for your startup.

Tip - an experienced lawyer for startups can help you. 

In addition, we have some inspiration for helpful clauses in your founder's agreement. 

1. Duties and responsibilities

Your startup's duties and responsibilities may involve: 

  • to carry out duties with reasonable care and skill; and 
  • to comply with laws; and 
  • to comply with management's direction. 

2. Decision making

So what's a significant decision ? 

You can agree on what's significant in your founders agreement.​

Perhaps seeking funding of $1,000,000 or making decisions about logo colours might be significant for you.

Decision making clauses will outline who will make your startup’s significant decisions and the consultation steps.

3. Resource contributions

Personal savings, business loans or investor capital are all potential sources for resource contributions.

Funding will be a major decision for your startup and because of that, it’s wise to include this clause.

You may wish to provide that each co-founder is repaid their contribution with interest where one co-founder has made a more substantial contribution than other co-founders.

Also, you may decide to repay any loans for your startup before any other profit allocations are made.

4. Conflict of interest

A conflict of interest may exist where a co-founder's and your startup’s aims are incompatible.

You may agree that another income source or project is perfectly acceptable.

In this case, you should have a clause that deals with conflicts of interest, before any arise.

Your conflict of interest clause can be drafted to require each founder to disclose any potential or existing conflict of interest. 

5. Restraints

You can include a restraint clause to prevent each of your co-founders from working with or for a competitor either before or after their term.

Employment restraints will typically be anywhere from 3 months to two years.

Also, restraints should only protect the legitimate interests of your startup. 

6. Confidentiality

Confidentiality clauses will stop co-founder’s from disclosing confidential information about your startup during and after their term. 

7. Intellectual property

Intellectual property normally states that intellectual property are the property of your startup.

Logo’s, trademarks, designs, business plans and source code are all intellectual property.

An intellectual property clause protects your startup should any co-founder leave and wish to make a claim. 

8. Mediation

Mediation clauses help you to minimise the escalation of disputes to legal proceedings.

Parties usually share mediation costs equally and there is an agreed procedure for choosing a mediator.

9. Variation

Variation clauses allow flexibility to change the terms of the agreement including the position descriptions.

10. Termination

Termination clauses practically set out what happens when the agreement ends.

For example, for each co-founder to hand back property and confidential information. 

Conclusion

It's important to have a clear idea of what matters most to you and your co-founders and include this in your founder's agreement.

Tailored employment agreements can take the place of the founders agreement as your startup grows and you have more cash flow.

Got questions or comments? leave them below.

I wish you every success in your ventures!


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Startup Contracts

The different types of terms and conditions for your business

The different types of terms and conditions for your business

Updated: 2 December 2019

You are likely most familiar with website terms and conditions, but there are others types of terms as well.  

Here’s what  you need to know about the different types and ways you can use them in your business. 

All-in-one terms

All-in-one terms sound appealing but they are not ideal. 

I am referring to terms that cover website use, affiliate and reseller terms, refund policies and everything else in between one set of terms and conditions.

Why?

Terms like this can be confusing because you are covering many topics. 

Worse, they may cause overwhelm for your customers and your customers may give up on reading them.

While it may not be practical to have separate terms and conditions for each aspect of your business, you may wish to try grouping, I will explain this idea next. 

Terms

Before we get into the different types of terms and conditions, you’ll hear some terms that all mean the same thing. These are: terms of use, terms of service, terms and conditions and website terms. 

Titles aside, what matters most is the content of your terms. 

If you are unsure, check the contents with your lawyer before they start drafting them for you.

So what should you be aiming for?

Your goal 

Aim for terms that cover key aspects of your business operations, are clear and limit your liability wherever legally possible.

Grouping terms 

What’s a happy medium?

I suggest grouping your terms and conditions wherever possible for each set of your business activities. 

Below are some examples of how you can group your terms and conditions.  

Website

The website terms and conditions are perhaps the most commonly known by clients. They cover: 

  • Product delivery 
  • Simple payment terms including refunds 
  • Pricing errors 
  • Disclaimers of liability 
  • Indemnity 
  • Viruses 
  • Hacking incidents

Do you have many offerings sold on different terms? In this case, you may want terms for each offering.

Terms for each offering

As you develop more offerings that have different features, delivery, payment and refund rules, you may wish to have separate terms and conditions for each.

An example would be if you supply your products online and in a bricks-and-mortar store.

In this case, you may want to give your online shoppers more generous return time frames compared to your bricks-and-mortar customers, to give them peace of mind.

Promotions 

You can have terms and conditions for each promotion that you run.

Below are sample items you may cover in your terms: 

  • Whether the offer is available with another 
  • How long the promotion will run 
  • Locations where the promotion is available 
  • Quantity limitation - e.g. one person per coupon, one person per day etc. 
  • Use limitation - e.g. coupon is only for person x, y or z

Complex aspects of your business

If you need to explain a complex process in many words, a new policy is useful. 

Terms and conditions vs client agreement

You can have terms and conditions, but in some situations you may also need a client agreement. 

For example, where  you are delivering bespoke services to a client that you are not delivering to all your clients, in this case, a client agreement is appropriate. Here are some examples: 

  • Loyalty discounts
  • Free product offer for a loyal customer 
  • Additional work to customise a product or service for a customer. 

I’ve written about the choice between terms and conditions and client agreements here.

Wrapping it all up

Wrapping it all up, here's what you need to know:

  • Terms are also known as terms and conditions, terms of service, terms of use and simply terms.
  • Break up your terms and conditions into categories for each aspect of your business
  • Example terms include website, promotions and product offerings.
  • Check if you also need a client agreement. 
  • Make sure your terms are clear and protect you from liability as far as legally possible. 

Always get advice if you are unsure. I wish you success in  all your ventures! 

Questions? Comments? Leave them below.


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Startup Contracts

The relationship clause in your contracts

The relationship clause in your contracts

Updated: 8 December 2019

The relationship clause is common in business contracts.

So what exactly is it?

It's a clause that clarifies the nature of the working relationship with the other parties to the agreement.

Sample relationship clauses

In its most basic form, the relationship clause will make a negative statement that the relationship is not one of employee and employer.

But in many cases, this is not enough.

Basic negative relationship clause

Here’s the basic negative relationship clause:

The service providers relationship with the client is not employer and employee.

Below is a more thorough relationship clause.

Relationship

  1. The Service Provider’s relationship with the Client is that of an independent contractor.
  2. Neither the Service Provider nor the Client will have (and must not represent that it has) the power, right or authority to bind the other, or to assume or create any obligation or responsibility, express or implied, on behalf of the other or in the other’s name;
  3. Nothing stated in this agreement should be construed as constituting the Service Provider and the Client as partners, in a joint venture, or as creating the relationship of employer and employee, master and servant or principal and agent between the parties;
  4. The relationship between the Service Provider and the Client is not exclusive. Either party may in any capacity work with, for or hire any third parties, works or services of any description.

Brief vs detailed

You are more likely to avoid disputes if you provide detail about what the parties relationship is and what it is not.

Why the relationship clause is important

The relationship clause is important for these reasons:

1. Contractor not employee

It clarifies an independent contractor situation so the other party is aware that they have not been hired as an employee and claims employee entitlements.

As a side note - it's not enough to say that someone is not an employee in a contract, then treat them as one off paper. This is called sham contracting and you can get into a lot of trouble for this.

2. Dealings with others

You can avoid a situation where a contractor holds themselves out as being authorised to act on your behalf.

3. No other relationship

In addition to clarifying that the other party is not an employee, you can avoid any other relationship misunderstandings, by clarifying there is no joint venture or agent relationship.

4. Exclusivity

Although last on the list, exclusivity is a big one.

You want to make it clear that the contractor has the freedom to work with other clients if this is the case without being locked into a contract that excludes this situation.

Note that one of the hallmarks of a contractor relationship is that the contractor is free to work with others. This is unlike an employee who is bound by the common law duties of loyalty and fidelity.

Be careful with contracts that claim a contractor relationship but impose restrictions on who the contractor can work with.

Questions? Comments? Leave them below.

I wish you success in all your ventures!


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Startup Contracts

Signing a deed or agreement in counterparts

Signing a deed or agreement in counterparts

22 April 2020

Here’s what you need to know about counterpart clauses in your deeds and agreements.

What is a counterpart clause? 

A counterpart clause is a clause that allows parties to a deed (or agreement) to execute separate copies of the same deed (or agreement). 

So, even though all parties signatures don't appear on the same deed or agreement, separately, they are still binding.

Here’s a sample counterpart clause:

Counterparts

This Deed may be executed in any number of counterparts. All counterparts, taken together, constitute one deed. A party may execute this Deed by signing any counterpart.

Why use a counterpart clause? 

If you have many parties to a deed or agreement, you’ll want to use a counterpart clause for efficiency’s sake.

However, you should be careful not to make the assumption that signing in counterparts is acceptable for all deeds and agreements.

You’ll need to see a clause in that deed or agreement that allows counterpart signatures before you can sign this way.

No signature software

One of the requirements of a deed is that it needs to be on paper so when you sign a deed that allows for counterparts, you’ll need to sign a paper copy.

This tip is especially important for deeds with witness sections - i.e. an individual that signs a deed with a witness section underneath.

If you want to learn more about signing deeds, you can read our article here.

For signing agreements, be sure to check out this article.

I wish you every success in your ventures!

Got questions or comments about signing your documents? Be sure to leave them below.


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Legal capacity and contracts in Australia

Legal capacity and contracts in Australia

Updated: 3 December 2019

Capacity simply means that a person is legally able to enter into a contract. 

To enter a contract, all parties to a contract must have contractual capacity.

The rules for capacity can vary by state in Australia so you should always get legal advice or research the rules that will apply in detail before you start your venture.

Below is an overview of what you need to be aware of when it comes to capacity and your contracts.

Intoxication

A contract is void if as a result of intoxication, the person is unable to understand the contract being made.

Bankruptcy

There are laws that limit which contracts bankrupts may enter and may also make non-disclosure of bankruptcy an offence.

Tip: bankruptcy is usually covered off as a warranty in contract and also as a contract termination trigger.

Example warranty: Each party warrants that they are not bankrupt.

Example clause for termination: All parties agree that this contract may be terminated if either party is ordered by court to be wound up, declared bankrupt or that a provisional liquidator or receiver or receiver and manager be appointed.

Mental disorder

A contract is void if a mental disorder means that a person cannot understand a contract that was made.

The rule is that the other person was or ought to have known of the other person’s disability.

Tip: You may be able to test mental capacity in some cases by asking questions before someone enters into a contract to test their understanding of key terms.

Minors

Both common law (case law) and statute (e.g. Acts and Regulations) restrict the capacity of minors to contract. There are some differences between the states.

Minors and necessities

A contract for the sale of goods and services that are deemed necessities of life will bind the minor in all Australian jurisdictions except NSW.

And, in case  you were wondering, necessities are things like accommodation, food, clothing, medicine, education; and instruction (like music lessons and sport coaching) 

But, it's not just the bare necessities; the courts consider what would be normal for the minor to maintain their existing lifestyle at the time the contract was entered. 

Minors and employment contracts

Also, a contract of employment with a minor (that’s fair and not oppressive) will be binding unless they repudiate it when they turn 18.

Company

A company only has contractual capacity to enter a contract if its constitution gives it power to enter into a contract by its constitution.

Tip: you can have a warranty clause in your contracts that states that each party warrants they are authorised to enter into the contract and there are no restrictions in the company constitution that would stop that party from entering into the contract.

With any contract, the key is to understand possible risks and to manage them with some well drafted clauses. 

Do you have questions or comments? Be sure to leave them below.

I wish you every success in all your ventures!


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