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The AR Group

New Year?s Resolutions for Your Business

With the dawn of a New Year, many of us set personal New Year’s resolutions exercise more, lose weight, read more, etc., but have you thought about New Year’s resolutions for your business? Just as January is a good time to reflect on personal goals and resolutions, so too is it a good time to reflect on goals and resolutions for your business.

  1. Review your sales contracts. You should take special care with the document that specifies your rights and obligations relating to your business? revenue-generating activities. Does your sales contract (or contracts) contain all the terms and conditions necessary to fully describe your offerings and protect you? Does the contract appropriately limit your liability, disclaim or limit any warranties, and otherwise clearly specify the scope and limitations of any service level agreements (SLAs)? Does your agreement contain force majeure language that limits your obligation to perform when it is impossible to do so? Does the contract provide the ability to timely suspend services if your customer fails to pay? Do you have an entire agreement or integration clause to avoid dispute over oral ?promises? to customers? These are all things that your templates should contain. But you also need to have appropriate processes in place regarding one-offs or custom contracts. Do you have controls in place to ensure that one-offs are escalated before they are offered to customers? Or better yet, do you have controls in place to ensure that customers understand that only personnel at a certain level or higher can bind your business? Ultimately, you want a sales contract template that protects you, but is fair to your customers.
  2. Review your vendor contracts. Your vendor contracts are also very important because the things you are procuring are necessary for you to maintain your business (if they are not necessary, you should re-assess whether the goods and services are worth procuring). Anything that you promise your customers needs to flow through to agreements with your vendors so that you can deliver on your promises. So, do your vendor agreements have clear deadlines regarding when the goods or services will be delivered or other service level agreements? Do your vendor agreements include credits or other remedies for the failure to fulfill the SLA? ?Do your agreements contain sufficient licensing or ownership transfer rights for intellectual property? For example, to the extent that you are procuring a software tool or a piece of code that will ultimately be used in or otherwise included in goods or services provided to your customer, do you have the necessary intellectual property rights so that you are not infringing a third party?s rights? Do your vendor agreements contain indemnification provisions that require your vendor to indemnify you for third-party claims resulting from the failure to fulfill a representation in the agreement?
  3. Assess your need for a trademark. Do you have a name, logo, or tagline that you use in conjunction with your goods or services? Have you registered that trademark with the U.S. Patent and Trademark Office so that you have the exclusive right to use that mark in conjunction with the goods or services that you offer? If not, you could be at risk. There are both offensive and defensive reasons to register your mark. Defensively, you do not want to be in a position where you have been using a name or other mark for a long time only to find out that your use is infringing another?s mark, and then be forced to abandon the mark altogether. By contrast, if you have built up a lot of goodwill associated with your brand, you want the ability to stop someone else?s use of a confusingly similar mark from an offensive standpoint if they are using it in a way that encroaches on your market.
  4. Review your corporate governance documents. Does your operating agreement for your limited liability company (or the corporate bylaws and shareholder agreement for your corporation) still meet your needs? Businesses grow?and what served you adequately when you had one owner or a handful of related owners is probably not adequate when the ownership structure changes. What happens if your business partner fails to perform his or duties?do your corporate governance documents provide you with a remedy so that you do not need to share your hard-earned profits with a deadbeat partner? January is also a good time to re-visit whether your supporting corporate governance documents are current. Have you documented all of the member, shareholder, or board of director meetings for the previous year and before? Have you captured all of the board resolutions or member decisions? Is your slate of officers, membership roll, or stock ledger current? They may seem like mere formalities, but failure to follow them could be a factor that contributes to piercing the veil, leading to personal liability for the shareholders or members.
  5. Re-visit your processes for discussing confidential information with others. Be wary of sharing information about any revenue-generating ideas or venture with others. Do you have a process in place for what kinds of information would require a confidentiality or non-disclosure agreement to be in place before that information is shared? If not, you should. Not all information is confidential, but confidential information may include financial information about your company, customer lists, business plans, intangible ideas or concepts that you paid to have developed that you do not want your vendor to re-sell to others. This could also include intellectual property that you do not want reverse engineered, or other information or ideas that you would not want used by the other party or shared with a third party. ?Before sharing confidential information, insist on getting a thorough, well-drafted NDA that suits your needs.
  6. Review your employee handbook and policies (or if you don?t have them yet, assess whether you should create them). If your business is growing, the provisions of an employee handbook or employee policies that you previously had in place may no longer be suitable for your burgeoning business. Changes in laws or regulations may also result in outdated employment policies. For example, Colorado law recently changed to generally legalize (at least under state law) limited marijuana possession and use. So, Colorado businesses may want to add provisions to their policies or handbooks specifying that employees must not use or possess marijuana in the workplace or otherwise be impaired by marijuana during work hours.
  7. Review how you are using trade names. I previously posted a blawg on this topic, but be careful how you use a trade name.
    If you use a trade name without explicitly disclosing that the other party is actually dealing with an LLC, corporation, or other entity, then you may be personally liable for any transactions in which the formal entity was not disclosed. Take care to disclose that formal entity on your business cards, in marketing materials, emails and other correspondence, and especially in contracts, proposals, quotes, and other materials that could bind you or your company if accepted.
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  8. Engage in succession planning. Do you have succession plans in place should your business partner die, become disabled, or is terminated by the company for failure to perform his or her employment duties? Would you be able to carry on your business without one or more of the other owners? Are you prepared to be in business with your business partner?s spouse or heirs?? (This could also be an issue if your business partner gets divorced). Consider including buy-sell provisions in the operating agreement or shareholder agreement, as applicable, that at least give the other members or shareholders the ability to purchase the interests of the deceased, disabled, or terminated owner. The buy-sell provision should also dictate how the ownership interests will be valued. Consider purchasing key-person insurance that would provide sufficient funds for you or the company to purchase the other ownership interests, retain the ability to repay loans, and procure third-party services to replace the services provided by the departed owner. These issues also touch on some things to consider in Resolution #4, but are important enough to merit their own resolution.
  9. Revisit the claims you make in marketing and advertising materials. Ensure that all ?marketing? materials do not contain false or misleading statements and otherwise comply with the Lanham Act, FTC rules, and other applicable law. Marketing materials consist of anything that contains statements of fact about your products or services. This could include statements on your website, emails, or traditional advertisements. It is important to ensure that any statements are truthful and non-deceptive, and are backed-up with prior substantiation that provides a ?reasonable basis? for any claim, and are not otherwise unfair. ?You also need to assess both express and implied claims and consider such claims from the point of view of the ?reasonable consumer? and not based on what you, as the advertiser, intend. Special rules also apply for advertisements that use endorsement by others, contain warranties, or suggest that something is ?free.? To the extent that you offer sweepstakes or other contests, there are state-specific requirements that must be followed to avoid the contest being an illegal lottery (typically by offering an alternative form of entry). Finally, to the extent that you are sending out unsolicited emails, ensure that you are complying with CAN-SPAM requirements. The CAN-SPAM Act basically requires that you: do not use false or misleading header information in your email; do not use deceptive subject lines; identify the email as an advertisement; provide a real postal address; and let recipients know how they can opt out (and promptly fulfill opt-out requests).
  10. Review your website terms of use and privacy policy. Do you have appropriate terms of use or a privacy policy? ?Your website?s terms of use form a contract (or at least should form a contract) between your business and those that visit your website. This is especially critical if you allow users to upload content or otherwise post on your website. Like other contracts, your terms of use should contain standard ?boilerplate? provisions that, among other things, limit your business? liability, disclaim any implied warranties regarding accuracy of the information contained on your website, and provide where and how any disputes will be resolved. The terms of use should also require those that post information on your website to license the right to use (or even transfer the rights to) the information that they post, along with a warranty that the user is not infringing the rights of any third parties. Your terms of use should also provide a notice and take-down procedure for purposes of the Digital Millennium Copyright Act (DMCA) that can help shield your business from copyright infringement when users post infringing content.? It is also prudent for your terms of use to deal with the Children’s Online Privacy Protection Act and explicitly prohibit users that are under age 13 from using your website.

In conjunction with your terms of use, it is also a good practice to include a privacy policy that includes: the effective date of the policy; the kinds of information collected; the categories of third parties with whom your business shares the information; how the user can review information collected by your business and request changes to it; and how your business will notify users of material changes to the policy. Note that the state of California requires a privacy policy for websites that collect information about California residents.

SMART TIPS: Make New Year?s resolutions for your business and follow through with them:

  • Review the terms of both your sales and vendor agreements.
  • Assess your need for a trademark.
  • Review your corporate governance documents.
  • Re-visit when and how you share confidential information with others.
  • Review your employee handbook and policies.
  • Review how you are using trade names.
  • Engage in succession planning.
  • Review the claims you make in marketing materials.
  • Review your website terms of use and privacy policy.