Having Contracts In My Business (For Employees & Clients)

[Timmy818]

Hi,


I started working for my father's small software business about 7 years ago. We are an ERP software provider that has been around since 1993.


From the beginning I noticed we did things a bit unprofessionally. Since we have no real formal employee contract as of right now I'm a bit worried hiring new staff and without a Support or Licensing contract, its bit hard to get money if they're switching systems or to ensure they don't somehow cheat us and use more licenses.


3 Former staff have stolen our source code and slapped another name on it and changed the interface and started making money off it.

2 Of them formed one company, which is now doing much better than us. The other has also formed another company that tries to steal our clients from time to time, but since he's running it solo (assuming he doesn't have many staff or if any) he isn't doing that well.


My father had sued True Religion who had bought the software from the 2 that are doing well. He didn't go through with it and ended it with a settlement because of costs and that "I'd make more money with this time I wasted", but this was before they had started to do much better than us. I thought we should have gone all the way no matter what the cost, to let other potential clients know that its not ok to use stolen intellectual property.

But still he doesn't push it, because he has an entrepreneur, developer, free mind and isn't really organized or good at managing.







Another concern of mine is support.


We do have problems sometimes with customers who don't pay. We haven't had clients sign a contract with us since before I joined the company (but they did before).

I was told it was because "it gets the deal done faster", without in detail what support is and conditions of paying.

Some of my overseas staff starts doing "their" work for them if they get pressured and other times if a customer is switching systems, they try not to pay their last balance. And without a formal agreement/contract I feel like its almost useless to get them to pay and I feel like without that contract/agreement we won't have a case for legal action.

Just recently I had spent many hours including 2 of my support staff helping out one client that was switching systems and wanted their last department store orders in. They stopped replying about the invoices I've sent a couple weeks ago, and I'm sure their intent was to ignore me.

I feel like if we don't change these things will continue. Most of the first 7 years I was learning the Technical side (Software development and its nature, and the Fashion Industry we sell to) of the business, but not the legal and administration side of running a business.


Do we need to change? Or is my father right saying its a waste of time? I don't feel like the latter is a great choice.

I'm just stressed over the future of our family business and with so much work regarding software which already gives me tons of things to worry about, all this legal, administration stuff worries me to now.

I just want our company in a position where we don't need to worry about these things. I know this is a long post, but if anyone that has been in a similar situation or has experience in this can give me some advice. I will greatly appreciate it.

Thank you to all that took their time to read this.

[LDonahue]

Hi, Timmy.

You have listed a bunch of great questions and issues. As a former IT professional myself, my law firm, Law 4 Small Business, tends to have quite a few IT, SaaS and e-Commerce type clients. All of them exhibit similar issues as you've raised, and all of them learn to deal with these issues over time.

You really did bring up a number of issues, and I'm going to try to summarize the issues you've raised:

(1) No Contracts with Employees / Contractors. This is a problem for a number of reasons. First and foremost, as a ERP provider, you're employees and contractors are providing IP in the form of mainly copyrighted material (i.e. documentation, interface, business processes, software). A contract specifically indicates whether a person is a contractor or employee. If you don't have a contract, there's some argument as to whether someone is an employee or contractor, even if you're paying them W2 or 1099 remuneration. With a contract, you know the intent of the parties, and if that person is a contractor, you MUST HAVE specific language that ensures IP rights are falling to your company. Currently, contractors without a contract own the copyrights of the work product they produce. In other words, your company may not own some of its software.

(2) Contracts with Customers. This is a problem for many of the reasons you stated. There are many ways to handle this, and streamline it in a sales / business process. I'll give you two examples: First, if your offering is SaaS-based, you can probably get away with an online "clickwrap" agreement. Second, if you have a highly customized solution, then you MUST have a services agreement that establishes SLA's, limited indemnity, payment terms, etc. Such a services agreement can start on "Page 2," where "Page 1" is the nice-looking "client intake" form that summarizes the services, pricing, terms and customer information with signature, incorporating the rest of the contract. These things are very standard in both custom services and SaaS-based businesses.

Tell your father it's not simply an issue of helping to collect money from customers and/or helping to prevent customers from being poached. It also helps protect your intellectual property, limit your liability, establish trade secret information, maximize the value of your company, improve cashflow and much, much more.

I wonder whether your company is even incorporated? If not, with the lack of a contract, I would say your risk of a catastrophic liability is very high.

Love to win your business if you need help with this. I can be reached at LDonahue @ L4SB.com or 505-715-5700. Good luck to you!

Larry.

[mon.smith]

Hi Timmy. That is a tricky situation. It sounds like your and your dad like to keep things simple. I wonder if an online document generator would work for your situation. Here are two that seem like good programs.
I know the most information about Smackdocs.com which is a quick and easy way to create business documents. It seems like a great option and could save you hundreds of dollars.
You could also look into Clerky for document formation and entrepreneurship guidance.
Good luck!

[mon.smith]

Hi Timmy. That is a tricky situation. It sounds like your and your dad like to keep things simple. You could probably find an online document generator for creating contract agreements. Here are two that seem like good programs.
I know the most information about Smackdocs.com which is a quick and easy way to create business documents. It seems like a great option and could save you hundreds of dollars.
You could also look into Clerky for document formation and entrepreneurship guidance.
Good luck!

[amayajace]

Typically a worker cannot be both an employee and an independent contractor at the same company. An employer can certainly have some employees and some independent contractors for different roles, and an employee for one company can perform contract work for another company.

[speeduser]

The contracts is really good. People need to get things moving to make it very interesting. - Steven C Wyer