B2B Contracts Don’t Work in a B2C World

“Rabo Bank” by bertknot from Flickr (Creative Commons License)

Over the years, I’ve seen a number of entrepreneurs try to adapt a B2B contract template to use in their B2C business.* This is like using a hammer to tune a piano – they’re using the wrong tool for the job. I just doesn’t work. Entrepreneurs who have B2B clients or B2C clients have similar needs when it comes to their service contracts, but the nature of the relationships are drastically different. (The reverse is also true – don’t try to adapt a B2C contract for use with B2B clients.) There are several reasons to not use a B2B contract with B2C clients:

You’re Going to Scare Your Clients
If your clients are Joe Average people, not entrepreneurs, a heavy-duty business contract is going to scare the bejezus out of them. I would be worried that they will be intimidated or confused by the verbiage.

A contract is a relationship management document. The purpose is to put everyone involved on the same page. Ideally, your contract will have all terms outlined in a single document so that either side can refer to it when they have a question. And contracts don’t have to be in legalese to be effective; I recommend using plain English and keeping the terms short and simple whenever possible. The goal is to prevent confusion, not create it.

A well-written contract can build rapport with your client. An effective contract will lay out the value you’re giving them and provide security in regards to how you perform the scope of work. A poorly-written or confusing contract may make a client apprehensive about hiring you.

Unnecessary Provisions
There are provisions that may be essential in a B2B contract that would be absurd to include in a B2C contract template, such as an independent contractor provision. I’m pretty sure the Smith family knows when they hired you to take their portrait, that they knew they weren’t hiring you as an employee. Likewise, non-solicitation and non-compete agreement would be bizarre in a contract for consumers. The nature of the relationship often doesn’t warrant provisions like this.

When I write a contract template (B2B or B2C), I start by trying to envision the full relationship between the parties, how they’re going to interact, what each side is giving and receiving from the relationship, and what my client’s pain points and concerns are. That gives me a starting point for writing an effective contract that fits their needs and addresses common problems in advance.

The Value of B2B Contracts for B2C Companies
There’s nothing wrong with an entrepreneur using a B2B contract as part of their research for what they might need for their business. It can provide ideas for what terms or phrasing they may want to use. Additionally, there are some terms that are frequently found in B2B and B2C contracts, such as scope of work, payment, intellectual property, and dispute resolution. Note: even when the headings in the contracts are similar, how the provisions are written may vary vastly based on the needs of the situation where they are used.

If you need a contract for your business, don’t just use a contract from a fellow entrepreneur. Instead, if you get a template, have a lawyer review it to make sure its suitable for your needs. They can also fill in gaps in your provisions and ask questions you didn’t think to consider. And if you have business that does B2B and B2C work, consider using different contract templates to suit the needs of your clients.

A contract template is an investment in your business. If you sign a contract and later regret it, you may be stuck in that situation. If you have questions about your contract needs, you can contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.

*B2B = Business to Business
B2C = Business to Consumer

Starting a Business in Arizona

Little Waitrose - Birmingham Snow Hill - Colmore Row - Now open - sign by Elliott Brown from Flickr (Creative Commons License)

Little Waitrose – Birmingham Snow Hill – Colmore Row – Now open – sign by Elliott Brown from Flickr (Creative Commons License)

Starting a business is exciting and can be overwhelming at times with everything that has to get done. I wish more business owners put more energy into creating structure within their business when they contemplate and launch their endeavors. It will save a lot of pain and frustration in the long run. If your plans for 2015 include starting a business, make sure these steps are on your to-do list in the first month or two of starting your company.

Discuss with your accountant what type of entity you should form. Every company needs an accountant. In Arizona, you have the option to create a C corporation, an S corporation, a B corporation, or an LLC. I tell all my clients to meet with their accountant to make sure they select the right entity and understand the corresponding tax implications and other responsibilities.

Check with the Arizona Corporation Commission and the U.S. Patent and Trademark Office to ensure that the name you want for your business is available. Many companies make the mistake of assuming that just because the website domain they want is available that their desired company or product name hasn’t been registered as a trademark for another company. If you use a name that has already been registered by someone else in the same or similar industry, they can make you rebrand.

Submit the necessary paperwork and fee with the Arizona Corporation Commission. Consider filing your trade name with the Secretary of State’s Office as well. The forms to file your Articles of Incorporation or your Articles of Organization are on the Arizona Corporation Commission’s website. Make sure you get all the supplemental forms you need. The standard filing fee is $60 for a corporation and $50 for an LLC. The filing fee to register a trade name with the Secretary of State is $10. (Registering a trade name prevents other companies in Arizona from using the same name. It is not a substitute for filing a federal trademark.)

Create a separate bank account for your business and set up your accounting system. It’s imperative that you keep your company’s corporate veil intact. I strongly recommend using an accounting system like QuickBooks. It makes life so much easier when you’re reviewing your books and preparing for taxes.

If your LLC has more than one owner, create an operating agreement. If you have a corporation, write your bylaws. These documents will dictate how you will run your business, including how you will divide responsibilities and how you will address problems when they occur. They will help you decide in advance how you will address situations that are likely to occur.

Create the contract templates you will need for your business. If applicable, write the terms of service for your website. If you are going to be hire to provide a product or service by multiple customers, you will want to have contract templates for those interactions. This creates consistency and uniformity which will help you build your reputation as well as be more efficient. You can customize your templates to suit your needs. I encourage business owners to look at others’ templates for ideas of what they might want to include but be leery of using someone’s template unless it’s been reviewed by your lawyer.

Discuss what intellectual property your business will or might create and what strategies you will use to protect it. Every business has intellectual property: copyrights, trademarks, patents, and trade secrets. It’s often the company’s most valuable asset. It is important you understand what you have and the best ways to protect it.

Ideally, you would have a lawyer involved from the beginning of your business, if only to tell you what you should do and when you’re better off hiring a lawyer to work for you. Even if you’re on a shoestring budget, you can find a reasonably priced business lawyer or resources for startups to assist you. It’s also prudent to schedule an annual consultation with your lawyer to educate yourself about what legal issues might be on the horizon and to get advice about what more you should do to protect your business as you have the ability to afford it. It’s easier and cheaper to prevent problems than to clean up the mess when something bad happens.

If you want to chat with me about starting a business in Arizona, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.

Be Wary of Downloading Contract Templates

Copy Taste by Maik Meid from Flickr (Creative Commons License)

Copy Taste by Maik Meid from Flickr (Creative Commons License)

One of the questions I frequently get at my speaking gigs is where can people go to find good contract templates online. This question makes me simultaneously happy and nervous. On one hand, I’m happy that the person is asking about their contract needs; however, I’m nervous that they think there might be an acceptable resource online that could replace proper legal advice.

I usually tell these people that contract templates from the internet are a good place to start when doing research on a type of contract and the types of provisions they should include in their agreement. It should be the beginning of their search, not the end. When you look at a contract template online you can never know for sure who wrote it, where it came from, or whether it would be suitable for your needs. There have been many times when I’ve seen someone using a contract for their business that had provisions that made no sense – like a 2-person business that had an operating agreement that required a 2/3 vote to make changes and an Arizona-based business that was using a contract that said the agreement was governed by New Jersey law.

Instead of looking on the internet for a template, you might be better off asking your colleagues in your industry if they would be willing to share their contract templates, depending on where they got them. You are more likely to find provisions that are applicable to your business and the practices of your industry.

Regardless of where you get your templates, it’s always a good idea to have a business lawyer review them before you use them for your company. Otherwise you may find yourself using a contract that is bad for your business, and as long as the provisions of the contract are legal, you could be stuck with it. It may not be as expensive as you think to have a lawyer review your contract in advance. I’ve always said it’s cheaper to hire a lawyer in the beginning to prevent problems than to have to hire one after the fact the clean up the mess.

If you don’t already have a contract template you’re considering using, talk with your lawyer about whether it would be more cost effective for you to find or create your own contract draft for them to review or simply hire a lawyer to create your contract from scratch.

And be equally leery of contract templates created and sold by lawyers. Some of these are good and some of these are crap. I saw an operating agreement this year that was created by a law firm that sells start-up packages for businesses. My client asked me to review the contract to help him resolve a problem with one of the owners. This contract was dozens of pages long, was filled with excessive legalese, and did not address all of my client’s needs; hence, he needed a hire me to help him fix his problem.

Best of luck to everyone whose plans for 2015 include starting a new business. Creating contracts to suit the needs of your business should be one of the many things on your to-do list. If you want to chat with me about your business plans for 2015, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me.

Please visit my homepage for more information about Carter Law Firm.

Thoughts About Effective Contracts

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Signing Paperwork by Dan Moyle from Flickr (Creative Commons License)

Some people think contracts are intimidating and others find them mind-numbingly boring. In general, I like working with contracts. I know this makes me sound like a big dork, but it’s true. I get to help my clients protect themselves and write for a living – two things I enjoy.

When it comes to contracts, some clients hire me to review an existing contract and some hire me to draft a contract from scratch. Here’s one thing I learned in law school and have verified to be true in practice: the person who writes the contract, does so in the best interest of their client. So when you read a contract, think about which side wrote the first draft because I will guarantee it’s biased in their favor.

For example, I’ve written plenty of contracts for situations where a business hires an independent contractor to work on a project. The contract verbiage can be very different when I’m representing the business than when I’m representing the contractor. This is why a lot of lawyers want to be the side that writes the first draft of a contract because they want to write in their client’s favor and negotiate from there.

Recently, I’ve worked on a few contracts that reminded me how important it is to still be reasonable when writing contracts. If your contract template is too biased in your favor, or doesn’t give the other side any sense of security in the relationship, you may have a hard time finding people who are willing to sign it.

I’ve seen this in particular to contract provisions about changing or terminating a contract. There are times, like when you’re a long-term service provider, where you need to be able to change the terms of the original agreement to reflect changes in the industry, your services, or your rates and it would be bad business practice to let the customer change the agreement. In some circumstances, the contract says that the provider can make any changes at any time and if the customer doesn’t like it, they can take their business elsewhere – very take it or leave it. Other times, it’s prudent to specify under what circumstances changes will be made, how much warning the customer will have prior to changes going into effect, and how that notification will be delivered.

I prefer to think about contracts as relationship management documents.   When you’re writing or reviewing a contract, think about the expected lifespan of your relationship with the other side and how you want to feel about that relationship at the end of the day. And remember that contracts are binding documents so it’s important that your contracts reflect your needs and protect your interests. This is one of the times where it’s important to make sure you have an accurate document before you sign it because you may not be able to change it later if you realize after the fact that you’ve made a mistake.

If you want to chat more about contracts, you can connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

What Are You Buying When You Use an Independent Contractor?

Photographer Dan by Kevin Dooley from Flickr (Creative Commons License)

Photographer Dan by Kevin Dooley from Flickr (Creative Commons License)

I get questions all the time from people involved in situations where a business outsources the creation of their website, marketing materials, or other photography work about who owns the copyright in the final work product and what can the other side do with it. And I get these questions from people on both sides of the relationship – the hiring company and the artist.

In these situations, my first question is always, “What does the contract say?” Under the U.S. Copyright Laws, if you hire a third party to do your graphic design, photography, or similar work, the artist owns the copyright in whatever you’ve hired them to create unless you have a written and signed contract that says you will own the copyright in the final product. A lot of business owners don’t understand this. They think they automatically get the rights in whatever they’ve hired someone to create just because they’ve paid for it. And that’s not true. Without an explicit contract that says they own the copyright, the artist owns it and the business has an implied license to use it.

Look at it this way – if you buy a poster for your office, you’re only buying the print. You don’t get the copyright with it. You can decide where you’re going to hang it or if you’re going to get rid of it, but you can’t make copies of it and sell them. Likewise, if you hire someone to do photography work for your website, you’re only buying the digital images, not the copyright in them. If you wanted to do something else with the images, you would need the photographer’s permission. If wanted to buy the rights, you could do that, but expect to pay extra.

There are many artists who write their contracts to say that the business hiring them owns the copyright in whatever they’ve hired the artist to create once they’ve paid their bill in full. That means if the client hasn’t paid their bill, they don’t own the rights to the work product, and the artist has rights to remove it from the client’s website if the client is using it without complying with the terms of the contract. I recently had a discussion with a website designer about modifying her contract template to explicitly state that she can and will shut down the client’s website if they are using her work and they haven’t paid the balance owed to her.

Here’s a video I did on additional issues you want to consider if you are or working with a third party contractor.

If you are a third party contractor or working with one, please read your contract carefully. This is the document for managing your relationship, including who owns the final work product and what happens if a problem arises. If you have contract templates in your work, make sure a skilled business and intellectual property attorney reviews them before you use it, because otherwise you may be stuck with terms that you don’t like.

If you want to chat more about working with contractors, copyright, and/or contracts, feel free to connect with me on TwitterFacebookYouTubeLinkedIn, or you can email me. You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

How Work Made for Hire Contracts Work

Photographer Devon Christopher Adams at Ignite Phoenix #10, photo by Joseph Abburscato used with permission

Photographer Devon Christopher Adams at Ignite Phoenix #10, photo by Joseph Abburscato used with permission

If you have ever hired a third party to do photography, video work, web design, graphic design, or to create website or marketing materials for your company, you should check your contracts. If you didn’t draft it correctly, there’s a good chance you don’t own the copyright in what they created.

When you hire a freelancer or a company to create this type of content for you, you need a work made for hire contract. This contract should state that the person being hired is a contractor (not an employee) that they are being hired to create a works made for hire, and that you will own the copyright in everything they create under the terms of the contract. This contract needs to be in writing and signed before the contractor begins work on your project.

If you don’t do this, you will not own the copyright in the work. You will only have an implied license to use the work in ways specified in your verbal or written agreement. The contractor will still own the copyright in the work. If you repurpose the work in another way without the contractor’s permission, there’s a chance that you will be infringing on the contractor’s copyright. The contractor could sue you for copyright infringement or force you to buy another license to use the work. They could offer to sell you the copyright in the content too, which basically means, from your perspective, you’ll have to pay for the same work twice.

I work with companies and freelancers on both sides of this issue. I encourage companies to make sure they have a proper works made for hire in place with their contractors and to not let their contractors lift a finger until that contract is signed. I often suggest that they have provision in their contracts that states the contractor will indemnify the company against any infringement claims made against the company because of the contractor’s work. The company should make the contractor cover the attorneys’ fees and any damages if it turns out the contractor ripped off someone else’s work instead of creating the work themselves.

On the flip side, I frequently write contract templates for freelancers to ensure that they understand what rights they are retaining and which ones they are giving up. Many freelancers want contracts that give the hiring party the copyright in their work and that also give the freelancer a license to put a copy of their work in their portfolio so they can use it to obtain other jobs.  Without this license, the contractor can’t use their work in any way without risking violating the copyright that the company now owns, even though they created it.

If you are a freelancer or a company who hires third parties to create content, please contact a copyright attorney to make sure your rights and interests are protected by the terms of your contracts. You can connect with me on TwitterGoogle+FacebookYouTubeLinkedIn, or you can email me.

You can also subscribe to the Carter Law Firm monthly newsletter.
Please visit my homepage for more information about Carter Law Firm.

Form Contracts are the Beginning

Signing a Contract by Victor1558Last weekend, I went indoor rock climbing with my friends. It’s not uncommon for me to participate in activities that require signing a liability waiver. I think most people just sign them without reading it. My friends get a kick out watching me read every word and change the terms I disagree with. I respect that these companies want to protect themselves against liability. I accept that I participate in risky activities and as such I might get hurt, but if I get hurt because of their horrific negligence, I want to be able to get them to pay for my injuries that they caused.

The same ideas apply to businesses. A lot of businesses have form contracts that they use for providing services, creating intellectual property, and/or licensing you software or equipment.   I look as these as a jumping off point to begin negotiations.

Whoever writes a contract write the terms that best protect their interests. If a company hires the lawyer, the lawyer writes the best provisions for their client. They may not care about your interests at all. It’s your job to read these contracts carefully and propose the terms and conditions that work best for you. Lots of things may be open for negotiation such as

  • Payment rates,
  • Whether you’re licensing, renting, or purchasing software or equipment,
  • The length of the contract,
  • Whether you can end the contract early,
  • How disputes will be settled, and
  • If their creating intellectual property for your use, who owns it.

There are so many things that could be open to negotiation. It’s best to think of the worst-case scenarios and to protect your interests and assets if one occurs. There may be more than one way to address a potential problem; you and the other side can decide which way works best for the both of you.

If you’re given a form contract and you don’t like a provision, change it and see what the other side says. They may accept it. (Be sure to check with your lawyer so you know how to properly change the contract, or better yet, hire a lawyer to review your contracts before you sign them.) If the other side says they can’t accept an altered contract, ask to speak with someone who can or seriously consider doing business with someone else.  You don’t want to set yourself up to be screwed down the line.

The law generally holds you to the contracts you create, so think hard before signing your name.

In my personal life, I’ve changed contracts and the other side has accepted the changes without question. Sometimes they’ve come back and said they can’t accept it with the changes, and that opened the discussion about what they could accept. Sometimes I have to walk away from an offer if we couldn’t make a deal and sometimes I bind myself to the original contract provisions, but I always know what risks I’m taking and I try to set myself up to be protected.