What kind of agreements do startups need? Legal contracts for entrepreneurs – Entrepreneurship Law

Summary

In this insightful discussion, Jaakko Lindgren, a Finnish attorney and founder of Dottir law firm, shares valuable advice for entrepreneurs on navigating commercial agreements. He emphasizes the importance of written contracts, understanding the terms, and avoiding pitfalls like unclear IPR rights and exclusivity clauses. Jaakko highlights the need for startups to have someone dedicated to legal matters early on, ensuring agreements are clearly understood and properly managed. The conversation also covers the vital role of agreements in product sales, risk management, and the critical aspects entrepreneurs should focus on to build successful businesses.

Takeaways

• 😀 Understand the difference between binding and non-binding agreements: Entrepreneurs must know which parts of a contract are legally enforceable.
• 😀 Read agreements carefully: Always read the terms of any contract to understand what you are agreeing to, especially in early-stage startups.
• 😀 Avoid oral agreements: In business, oral agreements are risky. Always opt for written contracts to clearly outline rights and obligations.
• 😀 One person should focus on legal aspects: In a startup, assign one team member to focus on legal matters, ensuring agreements are understood and organized.
• 😀 Commercial agreements are vital: They define how a startup sells products or services, making them crucial for business success.
• 😀 Memorandum of understanding (MOU) and letter of intent (LOI) can be binding: The title of an agreement doesn’t always indicate whether it's legally binding or not.
• 😀 Follow the money: To understand the types of agreements a startup should have, follow the money and see where it's coming from and going.
• 😀 No exclusivity clauses in startup agreements: Exclusivity clauses can restrict growth opportunities. Startups should avoid them unless they are well-defined and limited.
• 😀 Understand termination clauses: Always be clear on how and when you can terminate an agreement, and when the other party can do the same.
• 😀 Focus on Intellectual Property (IPR) rights: Clarify who owns the intellectual property in any agreement, especially in tech and software startups, as this is often the most valuable asset.

Q & A

What are the two kinds of products that entrepreneurs have?

Entrepreneurs have two kinds of products: the product they are selling to customers and the company itself.

Why is it important to have contracts for both the product and the company?

Contracts are important for both the product and the company to ensure that the legal obligations and rights of all parties involved are clearly defined, ensuring smooth transactions and protection.

What is the first piece of advice Jaakko Lindgren gives to startups regarding contracts?

Jaakko Lindgren advises that all agreements should be in written form, as written contracts are easier to review, understand, and enforce compared to oral ones.

What is the difference between a binding and non-binding agreement?

A binding agreement requires the parties involved to fulfill their obligations as outlined in the contract, while a non-binding agreement, such as a memorandum of understanding, might only outline intentions without legal obligations.

How can entrepreneurs determine if a memorandum of understanding (MOU) or letter of intent is binding?

Entrepreneurs can determine whether an MOU or letter of intent is binding by carefully reading the terms of the agreement, as the title alone does not indicate whether it is binding or not.

Why is it crucial for startup founders to read contracts before signing them?

It is crucial because reading contracts helps founders understand the terms, conditions, and obligations, ensuring they don't sign agreements that could harm the business in the long run.

What role does a founder or team member focusing on legal and administrative matters play in a startup?

A founder or team member focusing on legal and administrative matters ensures that all agreements are properly understood, maintained, and archived, which is important for the growth and success of the company, especially during due diligence phases for funding.

What kind of commercial agreements are essential for startups, and how can they be identified?

Essential commercial agreements for startups include those related to the sale of products or services, employee contracts, and service agreements. To identify the most crucial ones, startups should follow the flow of money, focusing on agreements that are necessary for revenue generation.

What are the key terms that should be included in a commercial agreement?

The key terms include a clear understanding of the scope, timetable, and pricing of the agreement. These elements ensure both parties are on the same page and help avoid misunderstandings.

What are the two critical clauses that entrepreneurs should focus on when signing an agreement?

Entrepreneurs should focus on the exclusivity clause and termination clause. Exclusivity clauses can limit business growth, while termination clauses define the life cycle of the agreement and how it can be ended.

What are some risks entrepreneurs face when dealing with intellectual property (IP) in commercial agreements?

Entrepreneurs risk unclear ownership of intellectual property rights if the agreement does not clearly define who owns the IPR after the contract. This can lead to problems in the future, especially for software firms where IPR is a key asset.

What are Jaakko Lindgren's key takeaways for entrepreneurs regarding commercial agreements?

Jaakko Lindgren advises that startups should focus on their product or service, ensure they have clear commercial agreements in place, and have one team member dedicated to understanding and managing these agreements. This will help avoid risks and ensure smooth business operations.