The High-touch Legal Services® Blog…for Startups!

© 2009-2014 Dana H. Shultz, Attorney at Law

LLCs: Why an Operating Agreement is Important

Logo for Quora, where Dana Shultz discussed why an operating agreement is importantThis post discusses why an operating agreement is important for every limited liability company (LLC). It expands upon an answer I provided on Quora several months ago. (See In simple terms, why are operating agreements important?)

An operating agreement is an agreement among the members of an LLC. It addresses relations among the members and how the LLC will conduct its affairs. (more…)

Browsewrap Agreements Must Be Brought to Users’ Attention

Seal of the Ninth Circuit Court of Appeals, which decided a case about browsewrap agreementsIn Online Terms can be Binding, even if You don’t have to Click!, I compared the enforceability of clickwrap and browsewrap agreements. This post discusses Nguyen v. Barnes & Noble, in which the U.S. Court of Appeals for the Ninth Circuit recently examined notice requirements for browsewrap agreements to be enforced.

Plaintiff Nguyen filed a class action lawsuit against Barnes & Noble because it had cancelled his online order for a Hewlett-Packard Touchpad tablet computer. (more…)

What Does Non-binding Mean and Why Should I Care?

Photo of an arm chained to a wall, symbolizing binding vs. non-binding obligationsThis post discusses the meaning of non-binding with respect to a letter of intent (LOI) or a memorandum of understanding (MOU). (Non-binding has a similar meaning in other legal contexts, such as legislation or arbitration, but I will not discuss those contexts here.)

Although I will refer to solely an LOI in the remainder of this post, the following pertains to an MOU, as well.

The purpose of an LOI is to summarize the basic terms of a relationship into which the parties wish to enter. It also specifies that the parties will enter into negotiations to prepare a definitive agreement establishing that relationship. (more…)

Negotiating Software Licenses – What Really Counts

Photo of shaking hands, which symbolizes negotiating software license agreementsThis post addresses the most important issues that are raised in negotiating software licenses.

I will assume that parties have agreed on pricing. (Otherwise, there is no point negotiating license terms!) In addition, I will ignore the lengthy legal “boilerplate” that appears in most software license agreements.

Four Critical Issues in Negotiating Software Licenses

In my experience, there are four issues that must be examined closely, and often result in much discussion, when negotiating software licenses. (more…)

Can I Save Money by Preparing a Contract for My Lawyer to Review?

Logo for Quora, where Dana Shultz answered a question about whether a client can save money by preparing a contract for lawyer reviewThis post is inspired by a Quora question that I answered. Q. Can I save money by preparing a contract for my lawyer to review?

A. No. Here is an explanation of why not.

Clients sometimes think that if they do the work to prepare the first draft of an agreement, they can save money because a lawyer will need less time to complete the agreement.

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How Should I Use a Fictitious Business Name?

Logo for Quora, the source for a question about fictitious business names

This post is adapted from my answer to a Quora question about use of a fictitious business name (FBN): Q. Must an LLC with a fictitious business name display the LLC name on its website?

A. In my opinion, an entity’s proper name and complete identification should be provided in every agreement. Agreements include website terms of service. Example showing how to include both the entity name and the FBN:

[Company Name], LLC, a California limited liability company doing business as [Fictitious Business Name], with a place of business at [address]

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Limitation of Liability and Confidentiality Provisions in Tech Contracts

Logo for Quora, where Dana Shultz abswered a question about limitation of liability

This post is based on a question about limitation of liability that I answered on Quora.

Q. Why do technology contracts often carve breach of confidentiality out of the limitation of liability?

A. I’m going to start by broadening the discussion, a bit.

First, the carve-outs typically modify both limitation of liability and limitation of damages. So, whereas an agreement might include provisions both limiting? the total (dollar) amount of liability and liability for consequential damages, such limitations will not apply to the carved-out subject matter.

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When a Handshake Deal Isn’t Really a Handshake Deal

Logo for Y Combinator, which announced The Handshake Deal Protocol

Last week Y Combinator announced The Handshake Deal Protocol. A “handshake deal” is an oral commitment to a funding transaction between a startup’s founders and an investor. The handshake deal is necessary in Silicon Valley because, in the world of startups, one must move quickly.

As Y Combinator notes, however, a handshake deal can create problems:

Unfortunately, things don’t work as smoothly in Silicon Valley as among diamond dealers. This is not a closed community of pros who deal with one another day after day. Many participants in the funding market are noobs, and some are dishonest.

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What are “Best Efforts”?

Picture of a reservoir

Contracts sometimes require that a party use its “best efforts” (in contrast to, for example, “commercially reasonable efforts”) to carry out its obligations. Last month, in California Pines Property Owners Assn. v. Pedotti, the California Court of Appeal for the Third District provided a definition of “best efforts”.

The case involved water diversion rights, specifically, Pedotti’s obligation to use “best efforts” to maintain a full reservoir. The court held [emphasis added]:

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How Can I Make Sure I Receive My Full Royalty?

Curled paper tape from a calculator

Intellectual property license agreements often include a provision by which the licensor is paid a royalty that is calculated as a percentage of the revenue received by the licensee from licensed products. Given that licensees have a financial incentive to reduce the amount of revenue that is reported*, the prudent licensor includes an audit provision in the license agreement.

The audit provision typically:

  • Specifies the frequency and nature of audits that may be conducted;
  • Provides that the licensee will pay any underpayment amount that is discovered plus interest; and
  • Obligates the licensor to pay for the audit unless the underpayment exceeds X% of the royalty that was due, in which case the licensee must reimburse the licensor for the cost of the audit.

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