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Four Contracts for Subscription Based Businesses

  • Pasha Law PC
  • Nov 20, 2018
  • 3 minute read

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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.

Corporate Governance

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.

Intellectual Property

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.

Vendor Agreements

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.

Privacy Policy

Similar to the Terms of Service, you may not think of the Privacy Policy as a contract. Not only is it a contract, but some states (such as California) require a privacy policy for sites that conduct business and collect personal information, which will be practically any subscription-based business. Generally speaking, a privacy policy should contain the categories of personally identifiable information the website collects, the purpose for which the personally identifiable information is used, and who it shares such information with. The implementation of the General Data Protection Regulation brought further requirements and compliance for websites doing business with residents in the European Union. The important takeaway from a privacy policy is to be transparent about what data you collet and how you use it.

Written by Pasha Law PC
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