A look into how to prevent preliminary business issues from derailing your company. A quick look at Non-disclosures, Non-solicitations, and other documents and contingencies you should address.

1. What You Need to
Address When Going
into Business with
Someone
Presented By: Asa C. Garber Date: 3/22/2016

2. How things begin...
 There is a (fairly) clear vision
of the company
 You have promising
strategies to move forward
 There is a general sense of
excitement and motivation
 The core group dynamic is
strong and singularly-
focused

3. Things change…
 Visions for the company
diverge
 Fundamental disagreements as
to how the company should
proceed in a significant area
arise
 Levels of commitment to the
company differ
 Personal issues cause
unforeseen changes

4. What are your priorities?
 If your business partner wants to end your relationship, what
do you want to protect?
 The survival of the business?
 Your ideas:
For the product or service?
For the organization of your business?
 Your exit goal(s)?
 Branding and trademarks?
 Investors and associated leads?
 Contracts and contacts with suppliers?

5. And it’s not just partners…
 Early employees or those working with you for
equity will likely have access to the things you
wish to protect, including trade secrets.
 Training an employee could be the same as
training a future competitor.

6. Invest in a contract
to set expectations
 You can use a contract to protect your interests and
plan for changing circumstances.
 You can invest your own time to draft up an
agreement and have it signed.
 You can invest in an attorney to review your draft or
to draft an agreement for you.

7. How to begin…
 Explain the situation:
 Write a short summary of your business and its purpose
 Write a short explanation of what each person does in the business
 Create a 6 months/1 year/5 year plan
 Explain who makes what decisions and how conflicts are resolved
 Brainstorm what both parties intend if the relationship ends, for whatever
reason (disagreement, better opportunity, moving, transcendence)
 List how assets will be distributed should the relationship end

8. Why is this important?
 Stability: The loss of a business relationship is inherently disruptive to a
business. A quick resolution of that loss will allow the remaining individual
or individuals to focus on the business, rather than the loss.
 Avoid Litigation: People sue when they feel wronged. By talking out
potential issues while the relationship is most functional, those individuals
are less likely to sue. Even if they do, a signed and written agreement will
greatly reduce the time and cost involved in the litigation.
 Guidance: By asking and discussing these questions, you will have a better
idea of where your business is going and how to get there. Talking
through expectations will also assist in everyone understanding her or his
role.
 Mental Health: Conflict is stressful and life is short.

9. Common issues
to address

10. Division of Assets/Other Value I
 Issue: Two or more individuals enter into a relationship to promote a new
product or service. This will involve developing the product/service,
organizing the business, branding and marketing it, securing investors,
obtaining suppliers and distributors, etc. Partway through the process, the
relationship ends; the individuals either all abandon the venture or fight
over who can use what to do what.

11. Division of Assets/Other Value II
 Solution: At the onset of the venture, or as soon as possible, the
individuals should discuss each others’ roles and expectations. This should
continue to a discussion of who owns or has rights to use assets, contacts,
etc. Draft an agreement memorializing the fruits of that discussion,
including trade secrets, confidentially, and other related provisions.

12. Division of Assets/Other Value III
 Complicated part: Many of the venture’s assets will be the product of
multiple individuals’ efforts. Detailed discussions on who created or
worked on what can clarify disputes early and while the parties involved
are most able to work out conflicts amicably.
 A lawyer experienced in problems commonly faced by startups and
business conflicts can assist you in these discussions, as well as finding
ways to resolve them amicably.
 Assignment of all intellectual property rights from founders to startup
 Use of restricted stock* to address the early departure of a founder. This allows
the company to buy back stock at a nominal value.
 *Stock that is not transferred or transferrable until certain conditions are met

13. The Non-Compete Clause I
 Issue: You hire me or otherwise share training, techniques, or other
information with me. I leave and, with all that new knowledge, make a
very good competitor or a good hire for a competitor.

14. The Non-Compete Clause II
 Solution: Have the employee/individual sign a non-compete agreement,
which prevents that person from using the skills or information she or he
acquired from you/your business if she or he leaves your business.

15. The Non-Compete Clause III
 Complicated part: These clauses must balance: (1) the business’s ability to
protect its valuable assets with (2) the worker’s ability to work.
 The law does this by invalidating “unreasonable” restrictions, based upon
the restrictions:
 Length of time
 Geographic zone
 The degree the skills are specialized
 Etc.

16. The Non-Solicitation Clause I
 (Similar) Issue: You hire me and share with me your client database and/or
I am going to use the good name of your company to network and meet
clients, developing good will. Having made myself this network of your
clients, I’m going to accept a job at a competitor and take all those clients
with me.

17. The Non-Solicitation Clause II
 Solution: Have the employee sign a non-solicitation agreement, which
prevents that person from contacting or otherwise soliciting your
company’s clients away from you.

18. The Non-Solicitation Clause III
 Complicated part: These clauses must balance: (1) the business’s ability to
protect its privileged information, (2) the worker’s ability to work, (3) the
clients’ abilities to choose their provider in a free market, and (4)
competitors’ abilities to compete.
 Thus, the law will not enforce overreaching restrictions, which:
 Restrict all contact to clients, rather than just for competition purposes
 Prevent the new employer from any contact with that client
 Restrict use of publicly-available client bases
 Etc.

19. The Mediation/Arbitration Clause I
 Issue: Despite or in the absence of good planning, you and your partner or
employee have reached a conflict and cannot move past it.

20. The Mediation/Arbitration Clause II
 Solution: Add a mediation or arbitration clause to your agreement,
requiring you to work out conflicts by involving a third party.
 The third party can be (essentially) anyone you agree to—whether it’s a
professional mediator or an entrepreneur, professor, trusted advisor, or
someone else you both respect. It is easier to identify one or three people
at the onset versus during the dispute.

21. What can we agree/
contract about?
 Just about anything. Contracts existed before lawyers did, before even the
oldest profession did.
 You might consider contracting about:
 General or specific purposes
 Who owns/can use what
 Who does what
 How fast things need to be resolved/done
 Who will pay what
 Who has what duties
 What law is used
 Where lawsuits are filed

22. What can’t you contract about?
 We’ve already discussed some legal limitations on the scope of
agreements like Non-Compete and Non-Solicitation Agreements.
 What else?
 Penalty Clauses
 Illegal Subject Matter
 Agreements against public policy (catch-all)
 But you can use a Severability Clause to save most of your contract, even
when you have something that isn’t enforceable.

23. Questions?
Questions for Asa Garber or
McCarthy Law, LLC?
Suggestions for future topics?