Bussiness advice, contract drafting.



  • This isn't quite a coding question but a WTF here could cost me more in the future then any coding WTF ever could.

    I am in the planning
    stages of possibly offering web development and basic design services independantly. I don't really know where to get started with some of
    the business side of this, especially contracts.

    For anyone here who has sold development/design services , where do you
    get your contracts? Do you hire a lawyer to draft them for you? Are
    there pre-written contracts you can buy or download that allow
    modification (links please if yes)? Is writing your own contracts an OK
    idea (or a very bad one)?

     



  • If you're just starting, then I wouldn't bother hiring a lawyer, buying pre-written ones, etc.

    If the job is small enough, then a signed quote is all you need; clearly, they agreed to the service, etc. Besides, are you really going to sue them if they don't pay?

    If the job is large enough, then they will provide you with a contract. READ IT OVER CLOSELY. You can change their agreement ... just X out stupid shit like LSD, jurisdictional requirements, net 90, etc. Again... are you really going to sue them (and expect to win and collect damages) if they don't pay? Your assurance is the first payment.

    Eventually, you'll end up writing your own contracts (they're nothing more than agreements in formal writing). By that point, you should get a lawyer to review the contracts for what you intended to say, etc. But that's a ways off...



  • Forgot the MOST IMPORTANT ADVICE EVER.... establish an LLC.

    I'm not sure what state you're in, but just go to the Secretary of STate, fill out the form, and pay the registration fee. Then go to the IRS website and get an EIN/TIN. Then open a business bank account. And always conduct business and sign contracts in the LLC's name.

    This will have been the cheapest form of liability insurance you can buy. You (as an individual) are no longer liable for your company's actions.



  • @Alex Papadimoulis said:

    And always conduct business and sign contracts in the LLC's name. [...] you (as an individual) are no longer liable for your company's actions.

    +1



  • well talking about LLC's and such is all of course very nice and quite probebly very true, however he hasn't really confirmed that he lives in the US or UK or whatever.

    Now i know that as a general rule you can assume someone is american if he doesn't specify where he lives, because non americans will often mention it, but still.

     

    But my advice would be to contact the chamber of commerce or better business bureau or whichever semi/fully government institution is brought to life to handle such things. I of course only have experience with my own country, but if it is sort of the same you will be able to lets lots of help from those people in starting up your business. Perhaps there will be government grants for starting your business or tax stuff you didn't knew, but in any case they will know how stuff is done or at least should be done.

     



  • @Alex Papadimoulis said:

    You (as an individual) are no longer liable for your company's actions.

    Not true.



  • @JvdL said:

    @Alex Papadimoulis said:
    You (as an individual) are no longer liable for your company's actions.

    Not true.

     

    @JvdL said:

    Filed under: Bernard L. Madoff Investment Securities LLC

    I get your point: Alex should have been more clear.  With an LLC, you are not financially liable -- beyond the amount you contributed to the LLC -- nor are you liable under most civil law.  It varies a bit by state, but that's the gist of it.  You are always criminally liable for your actions, regardless of your company structure.



  • @bstorer said:

    I get your point: Alex should have been more clear.  With an LLC, you are not financially liable -- beyond the amount you contributed to the LLC -- nor are you liable under most civil law.  It varies a bit by state, but that's the gist of it.  You are always criminally liable for your actions, regardless of your company structure.

    Yeah -- though, I figured that'd be obvious. "But Your Honor, I was acting as a representative of ABC Inc. when I killed him, not as an individual. How can I personally be found guilty for murder?"

    It's all within reason of course. But bottom line, if you screw up or they get irrational ("your software caused $10M in lost business"), then they aren't getting your house or other assets.



  •  Very informative responses, thank you. Before my planned business structure was going to be a Sole Proprietorship, you've about changed my mind about that now.

    I am in the US, currently in Oregon but I'm planning to start the bussiness when I move to California in a couple months.



  • @Alex Papadimoulis said:

    If the job is large enough, then they will provide you with a contract. READ IT OVER CLOSELY. You can change their agreement ... just X out stupid shit like LSD, jurisdictional requirements, net 90, etc. Again... are you really going to sue them (and expect to win and collect damages) if they don't pay? Your assurance is the first payment.

    Eventually, you'll end up writing your own contracts (they're nothing more than agreements in formal writing). By that point, you should get a lawyer to review the contracts for what you intended to say, etc. But that's a ways off...

      Frankly, I think you should engage a lawyer much sooner than Alex does.  If a company is providing a contract and the job is large enough, that's the time to get an attorney.  You want the attorney to not only review that document, but to help you understand the sorts of things you'll want to verify are (or aren't) in the agreement.  Plus, if you need an attorney down the road, it helps to already have one you've met and feel comfortable with. 

    Also, IT work (and web development in particular) is still a very young field. Make sure you find an attorney who knows the field well.  Don't go picking a name out of the phone book.  In many places, the state Bar Association can help you find someone.  In California they can't help you directly, but will send you to a certified lawyer referral service.



  • @bstorer said:

    Also, IT work (and web development in particular) is still a very young field. Make sure you find an attorney who knows the field well.

    This does nothing except ensuring you're paying a lot more and getting a lot less choices. There is nothing special about development. It's "work for hire" and you simply indemnify yourself from said work. Any specialized stuff (patents, complex license agreements, etc) can be referred by your existing attorney.

    @bstorer said:

    Don't go picking a name out of the phone book.  In many places, the state Bar Association can help you find someone.  In California they can't help you directly, but will send you to a certified lawyer referral service.

    This is the main reason that I say "don't look for a lawyer." A directory is a directory, whether its put out by the Bar or the Yellow Pages. The absolute best way to find a lawyer (or CPA, etc) is through referal, and the only way you'll do that is once you've met a group of trusted advisors and fellow business owners.

    Poor legal advice is worse than no legal advice, and I've seen far more many mistakes made from the former than the latter.



  • @bstorer said:

    With an LLC, you are not financially liable -- beyond the amount you contributed to the LLC -- nor are you liable under most civil law.

    @Alex Papadimoulis said:

    It's all within reason of course. But bottom line, if you screw up or they get irrational ("your software caused $10M in lost business"), then they aren't getting your house or other assets.

    Here's what Alex and bstorer do for weekends:

    On friday, they constitute an LLC and open a couple of bank accounts.

    On saturday, they hold a "recruiting event" in Vegas with ten hookers.

    On sunday, they haved maxed out the company credit.

    On monday, they shut down the company.




    They do this every weekend, because they're not liable. Wait, they're in jail??



    Bottom line: if you are a director-shareholder of an LLC, you personally liable for pretty much anything that someone finds you worth suing for. All within reason of course.



  • LLC stands for Limited Liability Company.

    Can you guess what that means? AFAIK nobody is saying you can commit murder and then not go to jail because you where doing it as acquisition for your funeral home, but you are protected to a certain extend from debt collectors and fuckups.



  • @stratos said:

    LLC stands for Limited Liability Company.Can you guess what that means? AFAIK nobody is saying you can commit murder and then not go to jail because you where doing it as acquisition for your funeral home, but you are protected to a certain extend from debt collectors and fuckups.

    For the typical one-person LLC that Alex suggests, this is an urban myth.There are many good, primarily tax-related reasons to constitute a one-person LLC, but limited liability is not one of them.

    You're basically protected as long as you run your busines and accounting properly and an LLC reverses the burden of proof somewhat but when you fuck up, you will get hurt personally if the other party is bigger than you.

    That's really not different then without an LLC: when you run a your business properly as an unconstituted person there is no reason why you should fear liability either.



  • @stratos said:

    well talking about LLC's and such is all of course very nice and quite probebly very true, however he hasn't really confirmed that he lives in the US or UK or whatever.

    In the US and UK (plc) you are better protected against liability then in for example the Netherlands (BV) or Spain (SL). Also, the minimum equity (18,000 euro) for a BV in the Netherlands makes it less attractive.



  • @JvdL said:

    @stratos said:

    LLC stands for Limited Liability Company.Can you guess what that means? AFAIK nobody is saying you can commit murder and then not go to jail because you where doing it as acquisition for your funeral home, but you are protected to a certain extend from debt collectors and fuckups.

    For the typical one-person LLC that Alex suggests, this is an urban myth.There are many good, primarily tax-related reasons to constitute a one-person LLC, but limited liability is not one of them.

    Yes, but no.  You're looking at it the wrong way.  The article you link to explains:

    @TFA said:
    The court first applied an alter-ego
    analysis and found many of the alter-ego factors to be present,
    including insufficient capitalization, failure to observe entity
    formalities, insolvency at the time of the transactions, siphoning of
    funds by those owning or controlling the entity, and the absence of
    corporate records.

    Piercing the veil is common, with LLCs or corporations, when you manage them haphazardly.  Frequent mixing of personal and company business or improper formality are the most common causes, as were those listed above.  Yes, the rules vary from state to state (the difficulty in piercing the veil with Nevada corporations is one of the reasons they're so popular right now), but they're all based essentially on whether the company is truly an independent entity from the manager.

    Of course you could be held liable if that's not the case.  But that's completely irrelevant; you might as well say that corporations aren't separate legal entities for the same reason.  I don't think anyone was attempting to suggest that a mismanaged LLC grants you protection from liability.



  • @JvdL said:

    @stratos said:

    well talking about LLC's and such is all of course very nice and quite probebly very true, however he hasn't really confirmed that he lives in the US or UK or whatever.

    In the US and UK (plc) you are better protected against liability then in for example the Netherlands (BV) or Spain (SL). Also, the minimum equity (18,000 euro) for a BV in the Netherlands makes it less attractive.

     

    I don't really see what this has to do with anything, since the topic starter has already confirmed he's american, but anyhow, It is pretty pointless to somehow compare protection, since in the netherlands there is no LLC and in america there is no BV. Also the laws governing business are very much different so your basically comparing apples and oranges anyway.

     



  • @JvdL said:

    On sunday, they haved maxed out the company credit.

    Though bstorer have already addressed the liability issue (i.e., you can't be held liable for your company's actions so long as it's a bona fide company acting legally and responsibly), let's keep in mind that no one will give your company credit without a personal guaranty. Even big companies with millions in the bank require personal guaranties from landlords, creditors, etc.

    For this very same reason, when I engage in contract work using third-party recruiters/headhunters/sleazeballs/bodyshops, I demand a personal guaranty that we get paid. Yeah, I'm sure we might be able to go through all the trouble of piercing their veil, but it's a lot easier to get a judgement when their name's on it,



  •  @Alex Papadimoulis said:

    no one will give your company credit without a personal guaranty

    There are 22 million ways to build up company debt without a personal guarantee. A single member LLC doesn't have to commit fraud to get pierced, it's enough to be undercapitalized and negligent. Having substantial debt indicates both.

    That said, financial liability is the least of your worries. Trust a lawyer: Officers and directors may be held individually liable for
    personal participation in tortious acts even though performed solely
    for the benefit of the corporation
    .

    Tort is not a crime; it is usually mere negligence or ignorance. For example, if you unknowingly infringe on a stupid software patent, they can take your personal assets.


    Basically your only protection is that it takes courts, judges and therefore money to get to you. That is, you're only protected against small liabilities.



  • @stratos said:

    LLC stands for Limited Liability Company.

    Can you guess what that means? AFAIK nobody is saying you can commit murder and then not go to jail because you where doing it as acquisition for your funeral home, but you are protected to a certain extend from debt collectors and fuckups.

    The converse is also true.  If you get sued by someone (for whatever), they can't go after your company and consequently sue them.

    They may be able to take your shares in your company because they are assets like any other, or you could be forced to sell those shares to pay whatever the judgement is.

    However, IANAL so if any of this is wrong correct me.



  • @JvdL said:

    Basically your only protection is that it takes courts, judges and therefore money to get to you. That is, you're only protected against small liabilities.
     

    Ok, so you're a low-level character, and need matching low-level armor.



  • @dhromed said:

    Ok, so you're a low-level character, and need matching low-level armor.
     

    Your armor should match who you're playing against, not how big you are yourself.

    Case example. I run a low-level one-man software development shop. Making a decent living but very small fry for my customers. The legal entity is a Spanish SL. The software is sold through a Netherlands BV partially owned by the SL. The project implementations are done by a Colorado Inc (S-Corporation) of which the Dutch BV is the sole proprietor. This is not paranoid web of protections but the inevitable red tape consequence of handful of individual partners operating globally.

    One of our customers insists on including a third party patent liability clause in the contract, making the Dutch BV liable for any infringement, like they do with their other software suppliers (IBM and SAP). This is a supply chain optimization project: there are millions of patents in that area; impossible to know them all and as software patents go, some are really trivial.

    Over the course of several years, the customer can reduce millions of costs using our software (at least, that's what our sales guys said). If it turns out a patent was infringed, the patent holder can go to the customer to get a share of those millions and the customer will claim it from the BV, which will bankrupt.

    But guess who wrote that software? Good faith or ignorance is no defense for patent infringement. We're all happy campers right now, but when a lot of money is at stake, the customer or my partners or the patent holders will look at me for indemnification. Limited liabilities won't protect me there. In fact, the SL is protected because it is only a capital share holder, but personally I may be liable.

    Bottom line: as Alex said, be damn sure to cover your ass in contracts, regardless of your legal structure. In our case, we're trying to cap the patent liability - it's still being negotiated.



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