Why Contracts Have So Many Definitions

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Iron Horse Bicycle Race Durango Women 10″ by Eleaf from Flickr (Creative Commons License)

This week, I had a chat with someone who was concerned about the media release provision in a contract to be in a cycling race. It said by signing up for the race, you give the organizers permission to use any video or images of you, your likeness, you name, and your biographic information for any purpose without need any additional information from you. He was worried that the race organizers could sell his life story without his permission.

I’ve seen this provision on every race contract I’ve signed – and it wasn’t one of the ones I altered. This type of provision is on lots of contracts, event tickets, even on A-frame signs around the state fair. Organizers want to use the photos from their event to promote the organization and its activities. They want to be able to make you their poster child if they snap an amazing photo of you. They want to be able to caption a race photo with “Chris Jones, 37, of Truth or Consequences, New Mexico . . .”

These organizers don’t want to sell your story to make the next Lifetime Movie. I know this because (1) they don’t know your life story and (2) they’re not in the business of sell stories for the next movie of the week.

This conversation reminded me of why contracts have so many definitions. Sometimes they start with pages of definitions. They help eliminate confusion and avoid disputes when questions arise down the line.

If there is a dispute about the meaning of a word in a contract, and both sides have a reasonable interpretation of it, the court will side with the person who didn’t draft the contract, unless the contract states otherwise. (Check your jurisdiction’s rules to see if the same rule exists where you live.)

Going back to the would-be racer, I told them if they had concerns about what a term in the agreement meant, they should email the organizers for clarification. (Never be afraid to ask questions about a contract before signing it.) If there’s a dispute later surrounding the meaning of the provision, they would be able to use the email response as the basis for their reasonable belief as to what it meant and to counter any contradictory statement by the other side.

If you’re in a situation where you need to create, draft, or negotiate a contract, please call a contract lawyer for help. (This week, my editor sent me an FYI email about a company in Columbia that is selling a “Pack Of Professionally Drafted Legal Contracts” for $24. I responded with “Let me know how that $24 contract holds up when challenged in court.”)

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How to Legally Use User-Generated Content

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Selfie by dr_zoidberg from Flickr (Creative Commons License)

Here’s a question I get from companies and their marketers: What are the legal dos and don’ts for using user-generated content? These are situations where a company wants to use a photo, video, or text created by one of their fans, usually from a site like Instagram, Facebook, or Trip Advisor. Many companies merely want to approach the person through the platform where they found the content they want to use and ask for permission to use it. While this strategy is convenient, it may not be in the company’s best interest.

Using Content Within a Platform

It’s easiest when a company wants to share someone’s post within the social media platform – e.g., sharing someone’s Instagram photo on the company’s Instagram. Many social media sites build this option into the platform where you don’t even have to ask for permission to share someone’s post on another’s account.  

Of course, I’m a risk-adverse lawyer so I tell my clients to review the terms of service first to see what happens just in case it turns out the person who created the post you shared didn’t have the right to do so and now you have to deal with the fallout. Depending on the circumstances, I might contact the person to ask the person if they took the photo (which would indicate if they’re likely the copyright holder), try to verify that the original poster is complying with the platform’s rules

Using Content Across Different Platforms

Here’s where it gets a little more complicated. These are the situations where you want to take content from someone’s post on one platform and share it on a different social media site, your website, or another third-party platform. For this situation, I recommend you have a contract drafted by a lawyer. You could have them create a template for you if curating user-generated content is part of your marketing plan.

If I were creating a contract template for obtaining permission to use content created by a user or fan, I’d likely include terms such as:

  • The user owns the IP in the content: either they created it or they have permission to use it
  • The user has authority to grant the company permission to use the content
  • The user grants the company a perpetual, irrevocable, worldwide, sublicensable, paid-in-full, royalty-free license to the company to use the content for any purpose without needing the person’s consent or credit, including the creation of derivative works (or in the alternative, that the user grants the company a copyright assignment)
  • The user will reimburse the company’s legal fees and damages if it is accused of wrongdoing because the company used the user’s content

Such a contract would also include boilerplate verbiage, like a dispute resolution provision that states how the company and user will resolve disputes if one occurs.

Always Apply Reality

In any potential legal situation, be sure to apply reality. If a company wants to use a photo with two people in it, whoever posted the image may not be able to speak on behalf of the other person in the photo, and you may need release from identifiable people to avoid being accused of violating their right of publicity.

Additionally, it will likely take longer to get permission if you want to use images and other content across platforms. Be sure to build that into your timeline if your marketing plan involves using user-generated content.

There are also those who may question whether it’s worthwhile to have a lawyer create a contract for these circumstances. When there are no issues, a contract may seem superfluous; however, contracts are imperative in situations where there is a dispute and/or the parties forget the terms of their agreement. When you work with your lawyer to create you contract, make sure it has provisions that will apply to situations that are likely to occur as well as the worst-case scenarios.

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Side Hustle Contracts

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Do the Hustle! by Joybot from Flickr (Creative Commons License)

Note: The links for Chris Guillebeau’s books are affiliate links.

I admire people like Chris Guillebeau who run with ideas and make stuff happen. He’s written a number of books, including The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future. The most recent book of his that I wrote was Side Hustle: From Idea to Income in 27 Days where he walks you through, day-by-day what you should do to launch a side hustle business. It’s a good book, but Chris and I disagree about how to approach contracts.

Day 14: Contract

Chris calls Day 14 “Set Up a Way to Get Paid.” This chapter covers selecting a payment system, creating invoices, and using simple contracts. For your contract, he says you only need to specify what you’ll do, how much you’ll get paid, when you’ll get paid, and “any protections you require.” Chris also says that that you can communicate all of this via email without needing a separate agreement document.

<cringe><shudder>

While Chris is technically right, I would never advise a client to operate their business this way. This is the type of contract that works when nothing goes wrong; however, contracts exist to save you in two situations:

  1. When there’s confusion about the parties’ obligations, and
  2. When there’s a problem or dispute.

Always Have a Separate Written Contract

If there is situation where lawyers are needed to resolve a dispute, the first thing I ask my client is “Where’s your contract?” If it’s a series of emails, and perhaps some text messages, and phone calls or conversations you claim occurred, the first part of my job will be compiling the terms of the agreement.

When there’s a single agreement, all the terms are in one place. And when the contract requires that all changes must be in writing and signed by both parties, it minimizes the risk of confusion or a he-said-she-said situation.

When you don’t have the terms of the contract in a single document, it opens the door for complications in the future. In many cases, it’s more cost-effective to have a lawyer create a contract template for your side hustle than to have to hire one to piece together the terms from the parties’ communications and actions. 

Minimum Contract Terms

In general, I don’t advise people to write their own contracts (unless they have a law degree or sufficient contract experience), but here are the basic terms I’d expect to find a side hustle contract:

  • Parties to the contract
  • Purpose of the contract
  • Payment terms, including what happens if the customer doesn’t pay (e.g. entrepreneurs who require ½ the fee up front and ½ upon completion)
  • Intellectual property terms – related to creation, assignment, and/or license
  • Where and how problems will be resolved, including the venue, jurisdiction, and which state law will govern
  • If/how the parties can make changes to the contract
  • “Entire agreement” – all the terms in the contract are in the agreement
  • “Severability” – if the contract has any invalid terms then the parties will throw those out and the rest of the contract will remain
  • A provision that states if a party chooses not to use a right granted by the contract, they don’t waive their right to use it in the future

When I approach a new contract for a client, I try to mentally walk through the customer’s journey and address the problems that the client is trying to avoid and pre-plan how you want to deal with problems when they occur.

Using a Lawyer for your Side Hustle

If you’re going to have a side hustle, I recommend you sit down with a lawyer for an hour. Tell them your goals and your budget. An understanding lawyer will tell you about the legal issues you need to be aware of, can do a quick trademark search to see if the name(s) you want to use are already registered, and they can tell you want you can do yourself and what tasks you should hire a lawyer to do for you.

A Few Final Thoughts

Thinking about what missteps I’ve seen companies inadvertently commit, here are a few extra tidbits of information:

  • The terms of service for a website, online course, or mobile app are contracts. Write them or have them created with care.
  • Please don’t rip of another company’s terms of service and just change out the company and product names. That’s a recipe for trouble. You don’t want to represent that you do things that you don’t. I’ve also seen situations where the company’s terms of service says that it’s governed by New Jersey law and the company has no connection to that state. (The company they stole the terms from was in New Jersey.)

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Legal Checklist to Protect Online Entrepreneurs

Labib Ittihadul from Flickr (Public Domain)

I was recently asked to create a list of what legal steps an entrepreneur should take if they operate solely online to protect their business. The person who asked appears to be primarily a YouTuber. Here’s the list I created for him: 

1. Consider having Two LLCs. One is a holding company for the intellectual property and licenses the IP to the other LLC to use it. This way if the holding company is sued for infringement, there are no assets to be collected if the holding company loses the lawsuit. We recommend this tactic for many businesses, not just online entrepreneurs.

2. Create an Operating Agreement if the LLC has more than One Owner.  Yes, this includes if you go into business with relatives, best friend, or romantic partner. This is a master document that lays out how the company will operate, each person’s obligations and responsibilities, and how the owners will address problems when they occur.

3. Move your Website to a Server Outside the U.S. The reason for doing is if there is ever a court order against the website, it will be more difficult to enforce if the website is house by a company outside the U.S. and not bound by U.S. law.

4. Register your Trademarks with the USPTO. So many legal issues could be minimized or avoided if every company properly registered their trademarks. This could include company names, product names, event names, logos, and slogans. When you have a registered trademark, you can stop a competitor from entering the marketplace while using a trademark that is confusingly similar to yours. If you have a strong international presence, it may be wise to register your trademarks in multiple countries.

5. Create a Copyright Strategy. Many professional content creators do guest posts for and collaborations with others and allow guest posts on their sites. It’s best to have contract templates for these situations that include clarification about who owns the copyright, what the other person gets, any limitations regarding the content, and an indemnification clause if appropriate.

Additionally, your copyright strategy should address when and how you can use others’ materials. You should have an understanding about fair use and where to look for materials that come with a license to modify the original as well as a license to use it for commercial purposes.

6. Consider Registering your Copyrights. You do not have to register your copyright to get your copyright rights, and you do not have to register everything you create; however, it’s beneficial to have the discussion about what you might want to register. You are required to register your copyright if you want to sue for infringement. Additionally, I frequently recommend registration to people who want to license or sell their copyrights.

7. Create an Action Plan for Addressing Suspected IP Infringement. Decide how you want to respond to suspected infringement before it occurs, so that you or your lawyer can be prepared to respond based on your desired outcome when it happens. Depending on how you want to respond, there may be things you need to do before the infringement occurs to best protect your rights.

8. Have a Contributor Contract Template. This is the contract you will use with people who contribute content to you, your site, your channel, or a social media account. It will state what rights each party has to use the content – most likely that they own it, and they grant you a license to use for certain purposes. It should also have an indemnification clause to protect you in the event you’re accused of violating another person’s IP rights or other legal wrong by using what the contributor provided to you.

9. Have an Influencer Contract Template. This is the contract to use when brands hire you so that the expectations on both sides are clear, and you state that you comply with FTC regulations. (You should probably have internal documents about FTC compliance as well.) Companies that hire influencers may have their own contracts that they want to use, but having your own template will help you analyze their contract to see how well it addresses your needs and concerns.

10. Create Website Terms and a Privacy Policy. These documents may need to comply with U.S. privacy laws, the Canadian Anti-Spam Legislation (CASL), and the General Data Protection Regulation (GDPR), and manage the expectations of visitors to your website. Many of the new privacy laws interfere with how many companies collect and use others’ personal information. These issues are complicated. Many people copy another content creator’s terms and privacy policy, but that could be a recipe for disaster if what you use is insufficient for your needs.

This may not be a complete or comprehensive list of legal steps to take to protect your business. It’s always best to consult a lawyer who understands the legal implications related to your business, preferably someone to specializes in business, intellectual property, and internet law. Hopefully this list gives you a place to start to evaluate your legal needs as a professional content creator or online entrepreneur.

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If You’re Going to “Wing It” as an Entrepreneur

“Yay!!” by Subharnab Majumdar from Flickr (Creative Commons License)

Plenty of entrepreneurs start out as a person or two, a business idea, and a shoestring budget. They know their craft but have limited or not experience starting or running a business. They don’t know what they don’t know – and that’s what gets them into trouble.

Many entrepreneurs employ the “we’ll learn as we go” approach to operating a business. Often times these are smart people, but if they get too focused on doing their business that they don’t take care of business within their operation, it can lead to costly mistakes: thousands of dollars in legal expenses and painful heartache to try to fix a problem that was completely avoidable.

Real-Life Facepalm Moments
I’ve had countless times where a business owner comes to me for help and I cringe and think, “We could have helped you avoid this if you had come to us sooner.” This is just a sample of my facepalm moments as a lawyer:

KAWS “At This Time” Sculpture by Guilhem Vellut from Flickr (Creative Commons License)

  • Owners who don’t create a business entity: put their personal assets at risk if the business gets sued;
  • LLC with multiple owners and no operating agreement: painful business “divorce” when things didn’t work out between owners;
  • Filing a trademark application with the USPTO that wasn’t trademarkable: the application might have had a chance if the description of the products and services was written more effectively;
  • Not filing a trademark and your competition files a trademark application that’s confusingly similar to or the same as yours: costly to make a claim against them and it may not be successful, which could force you to rebrand even though you were using it first;
  • Flawed customer contracts: doesn’t fully protect the company’s interests or address all likely contingencies;
  • Hiring a third-party contractor without a contract: if the person is hired to create an original work for the company, the company won’t own the copyright in what they hired the person to create and may have to pay to acquire it;
  • Working without a contract: so many problems. Whenever I get a call about a business deal gone bad, my first question is usually, “What does your contract say?” (Ideally, you want to be in a situation where, if the other side doesn’t perform as you agreed you can essentially respond with, “F*ck you, pay me.”)

If You’re Going to “Wing It”
If you are starting a business, my unsolicited advice is “Do your homework.” Invest the time to learn what goes into running your business and figure out what you don’t know. Reach out to established entrepreneurs to ask for their advice and avail yourself to resources in your community. In Arizona, we have dozens of these organizations like Arizona Small Business Association, Local First Arizona, and SCORE.

Even if you don’t think you can afford it, look into hiring a business and intellectual property lawyer for an hour. Bring them your ideas of what you want to do, and ask for their recommendations on how to make it happen. A good lawyer will respect your budget and tell you what you can do yourself and what you should hire a lawyer do for you. They can also recommendations resources to help you based on their experiences helping others.

If I’ve learned one thing as a lawyer it is that it’s easier and cheaper to prevent problems than to fix them.

True Story
Years ago, I worked with a new company where the owners hired me to create their operating agreement. I asked a lot of questions about things like intellectual property rights, compensation, and worst-case scenarios (e.g. disability of an owner) to create custom provisions for this document.

A few years later, the owners realized it wasn’t working out between then and decided to part ways. Their operating agreement dictated how they would address this situation, and they hired us again to revise the agreement to account for the exit of one of the owners. The process was professional, respectful, and cost-effective. I’m sure there were hurt feelings on both sides, but having this operating agreement helped the owners mange them and made for a smooth transition.

If you want more information about the legal dos and don’ts of starting and running a business, you can send me an email (Note: I can’t give advice to non-clients), and I maintain a mailing list where I share my thoughts about being a lawyer/entrepreneur, updates about projects I’m working on, upcoming speaking engagements, and I may provide information about products, services, and discounts. You can also connect with me on TwitterFacebookYouTube, or LinkedIn.

The 10 Legal Commandments of Entrepreneurship

“Stained Glass Window Full of Light and Color” by Stock Photos for Free from Flickr (Creative Commons License)

Since becoming a lawyer in 2011, I’ve had the privilege of working with businesses on a variety of legal issues. Looking back at some of the most cringe-worthy moments I’ve experiences I’ve had and heard about from other business and intellectual property lawyers, I’ve come up with a list of the 10 legal commandments of entrepreneurship:

 

1. Thou shall have a business entity.

When you start a business, create a business entity – an LLC or corporation. Your accountant can tell you which option is best for you. By separating the business from your personal assets, you limit your personal liability if the business is sued. If you open a business without an entity (aka a sole proprietorship), you don’t have this layer of protection.

 

2. Thou shall maintain your corporate veil.

Creating a business entity is how you begin to limit your liability, and you perfect that protection with a “corporate veil.” This means having a separate bank account and credit card for the business, and the business accounts pay for business expenses and your personal accounts pay for personal expenses. This creates a clear delineation between where the company ends and the person begins in terms of your finances. If the company is sued and loses, it’s clear which assets belong to the company and your person assets are protected.

 

3. Thou shall have a signed contract at the beginning of a business relationship.

When you are hired by a client or hire someone, start with a signed contract. A contract is a relationship-management document. It is your master document that puts everyone on the same page regarding their responsibilities. This will help you avoid confusion and resolve problems. When a client comes to me with a problem with a customer, I often start by asking “What does your contract say?”

 

4. Thou shall be thoughtful and careful about looking online for a contract template.

Looking at templates online is a good place to get ideas about terms you might want to have in your contract, but don’t indiscriminately use any contract you find. You don’t know where it came from or whether it’s suitable for your needs.

 

5. Thou shall take the time to fully read and understand a contract before signing it.

Never be afraid to ask questions or request changes when considering a contract offered to you. Don’t sign anything you don’t understand, because if you sign it and later regret it, you may be stuck with it.

 

6. Thou shall respect others’ copyrights.

Do not use others’ work without permission. Create your own original content. It’s ok to be inspired by and quote others, but add something to the conversation. If we’re talking about images, do not pull any image you find using a regular Google search. Seek out sources that provide licenses for use, including images available under Creative Commons. If there is an image you want to use that’s not available, contact the copyright holder and ask for permission. To date, I’ve never had anyone say, “No.”

 

7. Thou shall check the USPTO before branding a company or product.

When entrepreneurs think “branding,” lawyers think “trademark.” The United States Patent and Trademark Office (USPTO) has a database where you can see what company names, product names, and logos others have applied for and registered for their products and services. You don’t want to fall in love with, or invest a lot of time and money in, a branding idea to find out that it’s already been claimed by someone else.

 

8. Thou shall outsource your taxes.

Every entrepreneur needs an accountant. Let them do what they’re good at.

In the time it would take you to try to do your own taxes, you could make more than enough money to pay an accountant to do your taxes for you.

 

9. Thou shall consult thy attorney.

Even when you want to do things yourself, talk to your lawyer to make sure you’re not setting yourself and your business up for future problems. My most cringe-worthy moments as a lawyer have been problems clients created for themselves that we could have helped them avoid completely if they had told us what they were thinking about doing. It is easier and cheaper to prevent legal problems than to fix them.

 

10. Thou shall act with integrity.

Put your energy into your own business, creating quality products or services for your audience.

You don’t need to stoop to bad-mouthing the competing, using trademarks that are confusing similar to others, or ride other’s coattails by doing things like using a web domain that will allow you to pull an audience based on someone else’ popularity (e.g., cybersquatting). Be so good at what you do that you don’t need to use others to make a name for yourself.

One last note: If you’re an entrepreneur, don’t be afraid to ask for help. Accountants help you make money, lawyers help you keep it, and your peers will share their experiences so you can learn from them. If you are an entrepreneur, or have plans to become one, I hope you have people around you who can help you be successful.

If you want additional information about the legal dos and don’ts of starting and running a business, I maintain a mailing list where I share my thoughts about being a lawyer/entrepreneur, updates about projects I’m working on, upcoming speaking engagements, and I may provide information about products, services, and discounts. Please add yourself if you’re interested. You can also contact me directly or connect with me on TwitterFacebookYouTube, or LinkedIn.

Ultrasabers v. Phoenix Comicon | Contracts Matter

Lightsabers Long Exposure by Brian Neudorff from Flickr (Creative Commons License)

Phoenix Comicon nearly started with a bang – literally. On the first day of the con, Mathew Sterling, arrived at the Phoenix Convention Center with a loaded shotgun, three handguns, and knives, allegedly intending to kill actor Jason David Frank and police officers. He was arrested and charged with attempted murder.

Following this incident, Phoenix Comicon changed its rule for the event and banned all prop weapons. Likewise, it instructed vendors who sell prop weapons to wrap them when completing a sale. This is where the problems between Ultrasabers and Phoenix Comicon began.

Ultrasabers sells replica lightsabers and was a repeat vendor at Phoenix Comicon. There was a dispute between the two, resulting in Phoenix Comicon demanding that Ultrasabers pack up their booth and vacate the premises on the Friday night of the con. It’s unclear exactly what transpired between these two companies. Ultrasabers and Phoenix Comicon each released a statement about this matter.

As a lawyer, one of my first thoughts when I heard about this situation was, “This is why contracts matter.” For full disclosure: I don’t represent either party in this matter. I didn’t write this vendor contract. I haven’t even seen it. I’m just an outsider looking in.

Contracts don’t exist for when things go right. Contracts exist for when things go wrong. A contract is a relationship management document; it helps prevent and/or solve problems between people in a relationship. It’s imperative that contracts are written with a thorough scope, and that the recipient review it thoughtfully before signing it, because if things take a downward turn, the contract will be the roadmap you rely on to achieve a resolution. Whenever a client or prospective client comes to me with a contract dispute, one of the first questions I ask is, “What does your contract say?” Footnote: The most common response I get to this question is, “We didn’t have one.”

In regards to Ultrasabers v. Phoenix Comicon, I don’t know what actually happened between the two or whether this situation is resolved at this point. I hope this issue was a reminder, or perhaps a wake-up call, to people who participate as a vendor or performer to read their contracts carefully before signing them. If you sign a contract and you later regret it, there may be nothing you can do to change the rules of that relationship at that point.

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.

Can You Afford to be an Entrepreneur?

Money Unfolding by CreditCafe.com from Flickr (Creative Commons License)

When I decided to launch this law firm, a good friend and fellow entrepreneur/lawyer warned me: “You’re going to need 6 months’ worth of money and 12 months’ worth of patience.” He was right. Fortunately, I had nearly 3 months from deciding to opening my practice until our first day in business, which gave me time to research and formulate my offerings and tap into community and professional resources to get my business off the ground.

Other entrepreneurs aren’t that lucky. They may not have the time and/or money to consult counsel prior to launching a new venture. Even on a condensed time frame or on a shoestring budget, your legal needs should be part of the discussion and plan.

Full-Time Venture Needs Financial Backing
If you want your new venture to be your full-time job, you need to be prepared for the potential financial strain that comes with that undertaking if you don’t have a spouse or other income supporting you in the meantime. You may have the gift of time, but you can only operate your business as long as you have income or savings to cover your bills. I don’t recommend jumping into a new venture without some type of financial safety net.

For entrepreneurs starting with a side hustle, you have the opposite issue. Your regular job can pay your bills while you develop your business, but it limits how many hours you can work. And depending on your circumstances, you job may not provide much money to put towards your business after paying your bills.

Make the Business Fund Itself
While every business needs some seed money to get started, make your business fund itself. When you decide to start a business, make a list of all the services, equipment, and supplies you think your company needs. Then step back and categorize each item as “Must Have” or “Nice To Have.” Ask a trusted colleague or friend to review your list and challenge you on what you need.

Many businesses don’t need much to get started. When I started this firm, I only needed an LLC, client contract templates, computer, scanner/printer, website, email address, phone number, and business cards. I gave myself a limited budget for supplies, bar dues, and to pay for my LLC and my accountant, and after that, I didn’t buy anything for the business until the business could afford it. (Even if my personal account could afford it, I made myself wait until the business could afford it.) It forced me to be scrappy, creative, and thoughtful about how I spend my money. It’s something I recommend to other entrepreneurs, including seeking out low-cost and free options when appropriate.

Prioritize
I regularly receive emails from people who need help with the legal side of starting a business, and some of them claim that they can’t afford an hour of legal services. Sometimes I wonder if these entrepreneurs didn’t do any research into the expected costs of a consult, contract, or trademark when creating their business budget. (When people can’t afford my firm, I’m happy to provide referrals to other options and/or tell them what things they can do themselves – like filing an LLC with the Arizona Corporation Commission. The forms and instructions are online.)

A fellow entrepreneur suggested that these potential clients don’t see value in paying for quality legal services. That sounds plausible. Many new entrepreneurs are focused on their expected success that they don’t want to ponder the what-if scenarios. In many ways, quality contracts and other legal services protect you when things go wrong. You often don’t need to rely on them when things go right.

My recommendation for all new entrepreneurs is to meet with a business accountant and a lawyer to make sure you’re starting out on the right foot, and that you understand the legal implications of your venture. If you have questions about business 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 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

Avoid Litigation: Contracts and Timing

Water wheel close-up by Edward Webb from Flickr (Creative Commons License)

The most efficient way I’ve seen to avoid problems in a business contract situation is to set up the relationship between the parties in such a way that each side is forced to perform to get what they want from the other side. Just like a water wheel feeds the machine that keeps the wheel turning, the parties should be compelled to give the other side what they need.

Contract = Relationship Management Document
A contract is a merely a document that outlines a relationship between parties – what each side must do, and what they get in return. Every contract should have a dispute resolution provision that outlines how the parties will resolve problems if they occur. In a perfect world, the parties will never need to resort to this clause.

While a good contract will have a thoughtful dispute resolution clause, a great contract will structure the parties’ relationship in such a way that neither side can fathom breaching it.

Structure the Relationship to Feed Everyone’s Needs
When I begin work on a new contract, I ask my client to paint me a word picture of the people involved and the relationship between them. I try to understand not only what each side is giving and getting, but also their motivations.

One of the obvious potential problems in a contract relationship is that one side will perform their part to the benefit of the other, and the other side doesn’t reciprocate as required in the agreement. This may be situation where one side takes your money and runs, or conversely, you do work for your client and they don’t pay you after they’ve received your work product.

The best way to avoid this situation is to set up the work flow so that each side doesn’t get what they want until the other side has done what they promised to do. For many entrepreneurs who are professional creatives, I recommend that they write their contracts to state that the client won’t receive the final product until their bill has been paid. Likewise, for photographers, I recommend that the contract state that the client won’t see the proofs until they’ve paid for their shoot in full.

Please Pay Here by Steven Depolo from Flickr (Creative Commons License)

Real Life Example
I recently worked with a graphic designer who is a smart entrepreneur with a brilliant contract. I’m creating my first online course and hired her to create the logo. Per our contract, I paid 50% up front and she got to work. She designed me a brilliant logo that fits the course and my personality. She said she’d send the final files when she received the balance.

That email came at the beginning of a week when I wasn’t home where the company checkbook lives. I told her this and she said she didn’t mind waiting until I could send payment. (Did I mention she’s a friend?) I was happy she held her boundaries to make sure she got paid before she sent the final work product. It’s not that I wouldn’t have paid her, but it was the right thing to do as a business owner.

If you choose not to write your contract with these provisions, you may be in a situation where you have go after the other side for payment or performance, possibly hiring a lawyer to write a demand letter, or taking the other side to court. If it’s a relatively low-dollar amount, you may end up in small claims court where you may get a judgment in your favor, but you still need to collect and the amount of time and energy involved to go through the process may make you question whether it was worth it.

This is why a good business lawyer is an investment for your business. They can see the potential pitfalls in your business and help you avoid them and advocate for your rights when necessary. If you need help with writing a contract that fits the needs of your business, you can contact me directly or a social media lawyer in your community. I post about these issues on TwitterFacebookYouTube, and LinkedIn. You can also get access to more exclusive content that is available only to people on my mailing list, by subscribing here.