Four Contracts Every Subscription-Based Business Should Execute Before Making a Sale (Outside of the Terms of Service)
We previously discussed the importance of the clear and conspicuous standard throughout the auto-renewal terms of service for businesses utilizing a subscription-based model. While the terms of service may be the most important contract for subscription-based businesses (yes, it’s technically a contract), there are other agreements that should also be in place prior to a subscription-based service making its first sale.
It’s not uncommon for a few people to have a shared interest and launch a startup. Unfortunately, what’s also not uncommon is for those founders to fail to agree to the rules that govern how their company operates. At a minimum, an entity should have the core governing document. Specifically, I’m talking about an operating agreement (for an LLC), bylaws (for a corporation), or partnership agreement (for a partnership). Everyone may be on the same page initially, but problems can and likely will eventually surface and once that occurs, it’s too late to come to an agreement on respective ownership interests, who has managerial authority, and other key aspects that should be squared away in the governing corporate agreement.
While companies will try to keep everything in-house in the infancy stages of their business, one area where it’s common to see outsourcing is for creation of the company’s brand. If your business uses a freelancer to develop a name, logo, tagline, design, or other intellectual property, it will be of critical importance to get an agreement in place so that the freelancer doesn’t keep any rights to what they create for you. The general rule is that if a non-employee develops intellectual property for your business, that person owns the rights to it, absent an agreement otherwise. Not only is a written agreement important for this reason, but you’ll also want to protect against third party claims of IP infringement, which can force a crippling rebrand utilizing valuable time and money.
I’m not surprising anyone to say that a subscription box service cannot exist without the underlying goods. There are a variety of considerations when looking to form relationships with vendors that supply such goods. Locking up exclusivity is sometimes preferred, but often requires significant volume. Delivery times are also of critical concern, as you’ll want to ensure that you can provide the completed box to customers at the times promised without having to find last minute substitute goods. Depending on what type of products you sell, liability surrounding the goods you purchase could also be a major concern. The bottom line is that if you don’t have anything in writing with your vendors, there’s nothing preventing them from walking away without notice or price gauging you after you experience growth.
Written by Pasha Law PC
Learn more at http://pashalaw.com