Your startup needs customers to survive. If and when you make sales or generate installs, you are wading into the fast moving stream of commerce and exposing yourself to risk. Well-drafted customer contracts limit your liability and create legally enforceable rights to get paid for your work. In fact, contracts are actually dispute prevention mechanisms, forcing parties on either side to clearly define what is supposed to happen in advance, aligning expectations and increasing the likelihood that all goes according to plan.
So developing a working understanding of contracts generally, a deep understanding of your core customer contracts specifically, and hiring a competent lawyer to draft key contracts from the beginning, together represent an investment that will pay dividends over the life of your startup.
This article, the third in Extra Crunch’s exclusive “Startup Law A to Z” series, follows previous articles on intellectual property (IP) and corporate matters. If you are tuning in now, this series is designed to provide founders enough information to intelligently analyze business circumstances vis-à-vis certain common legal issues startups face. These articles are detailed and admittedly lengthy, but the concepts discussed are critical for founders to understand deeply.
If after reading this or other articles in the “Startup Law A to Z” series, you identify legal risks facing your startup, then other Extra Crunch resources can help. For example, the Verified Experts of Extra Crunch include detailed profiles of “Verified Expert Lawyers” – some of the most experienced and skilled startup lawyers in practice today. You can and should use these resources to identify attorneys focused on serving companies at your stage with experience in the particular matters at hand and simply reach out for further guidance.
The Customer Contracts checklist:
Contract Law Generally
- Contract Formation
- Term and Termination
- Breach and Remedies
- Distinctions and Key Provisions
- Enforceability through Click-Wrap Agreements
- Notice of Amendments and Revisions
- State, Federal, International Laws:
- Required under Cal. Bus. & Prof. Code § 22575(a)
- FTC (COPPA, HIPAA, Gramm-Leach-Bliley Act)
- Disclosure and Enforceability
- Mutual vs. One-Way
- Definition of Confidential Information
- Residual Clauses
- Non-Solicit and Non-Competes
Master Services Agreements and Service Level Agreements
- Y-Combinator “Sales Agreement” / MSA Template
- Deal Terms, Legal Terms, Boilerplate Terms
- Legal Terms Explained:
- Warranty and Disclaimer
- Indemnity (and Insurance)
- Limitation of Liability
Contract law generally
What is a contract? Any law student preparing for the bar exam will tell you, in monotone: “a contract is a promise or set of promises, for breach of which the law provides a remedy, or the performance of which the law recognizes as a duty.”
Simple enough, but which law? For contracts, it is primarily the “common law” which governs contracts, that is, law derived from judicial decisions and not government-enacted statutes (historical background courtesy of UC Berkeley). That said, contracts for the sale of “goods” are governed by specifically promulgated rules set forth in the Uniform Commercial Code (or “UCC”). And yes, in certain circumstances, courts have found that software may be considered “goods” for this purpose, see On Contracts.