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small business contract broker agreement

A strong sales program is central to the success of most businesses. However, even an accomplished sales team may be augmented by a broker with a specific set of skills, contacts, and/or licenses. When engaging a broker, be careful to precisely define the relationship, its scope, term, and compensation structure to ensure that you receive the desired value. Let’s get started.

1. All in? One of the first considerations in working with a broker is the scope of representation. Are they deputized to sell all of your products and/or services, or just some? Do they have representation rights in a limited geographic region, or may they sell everywhere? Will you work with this broker exclusively, or have other sales representatives? Unless you have a strong knowledge of the broker’s abilities, it may be wise to grant a “test” field of representation, so that you can evaluate their abilities before granting broad-scope exclusivity. Moreover, even when granting a broker certain exclusivities, you may want to retain the right to make your own direct sales that were not generated by the broker, without a fee obligation. And, for assurance in the event that things don't work out, include a finite term for the agreement so that there’s a chance for everyone to reevaluate the value of the relationship. That term will vary depending upon what's a reasonable timeframe to generate target sales in your industry.

2. Employee, Agent or Neither? Typically, the business goal is to treat a broker as an independent contractor, rather than an employee. The IRS offers guidance on this, which you can review here. For greater clarification, the independent contractor relationship can be reinforced with explicit contract language indicating that the broker is not your employee, and as such, you will neither assume the privileges, nor the responsibilities, of an employer. So for example, you will not provide the broker with health insurance benefits, nor will you withhold taxes that are due to governmental agencies for employees. Similarly, your agreement may clarify that you will not control the broker’s activities in the same way that you may for an employee. For instance, you do not set the broker’s hours or provide them with transportation for sales calls. Likewise, it’s prudent to clarify in your agreement that the broker is not your agent, and therefore cannot bind you to any contract with a third party, such as a customer. That way, you maintain control over the terms of your agreements and product/service commitments.

3. What Will it Cost? Set the broker’s compensation structure up front. Will they be paid a flat fee per order, or a commission based upon a percentage of sales revenue? What if a customer receives discounts or makes returns? Is that deducted from the broker’s commission calculation? When is the broker’s fee due – before or after the customer’s payment? (On a related note, who handles disputes with customers if they don’t timely pay for their orders? If the broker has the customer relationship, you may want their help with a resolution.) Be aware that brokers may request an audit right to ensure that they are being paid appropriately. This is often a reasonable request, although there may be some negotiation as to who bears that audit cost.

Clarifying the scope of representation, independent contractor relationship and commission structures will help avoid disputes with your broker in the future. In addition, be mindful that your broker may learn important information about your business that provides a competitive advantage, such as pricing and profitability margins, customer lists, financial targets and/or expansion plans. All of these may be trade secrets, which should be protected through confidentiality and non-disclosure agreements. Likewise, you may wish to include non-solicitation terms in your contract to discourage the broker from enlisting your employees to enjoy greener grass outside of your pastures.

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JoAnn Holmes ("Jo") is the founder of HOLMES@LAW, LLC. She serves as Outside General Counsel to select, intimate management teams for midsize companies. Likewise, Jo provides strategic support for lean law departments.

Jo founded HOLMES@LAW to provide agile, result-driven legal solutions. Beyond risk management, we help identify opportunities. The firm's focus areas are business law and strategy, commercial contracts and global intellectual property management. We build long-term relationships as trusted collaborators, and our flexibility consistently yields great value for clients.

HOLMES@LAW is also committed to service work, including through supporting local schools and leadership groups, as well as domestic and international charities. Since its founding, the firm has dedicated more than 200 hours to community service.

Contact Us to discuss how we can work together for your business success. HOLMES@LAW - Your Business Ally™.

Holmes, How … about the Disclaimers?

Information shared by JoAnn Holmes and/or HOLMES@LAW, LLC ("We or Us") is for educational purposes only. It is not legal advice. Each situation is unique, so the information We share may not be relevant to your circumstance. Until you enter a formal engagement agreement with Us, We are not your legal counsel, and no attorney-client relationship exists. So, please do not share any confidential information with Us, and please only interact with Us if you agree to these ground rules. Thanks!

© 2016 HOLMES@LAW, LLC. All Rights Reserved.


software Saas contract

If you hire a software developer to customize a program, or you’re a software developer providing that service, you can negotiate the terms of your agreement … and there’s good reason why you should. Beyond the expected standard contractual terms like pricing, payment and length of service, it’s also important to deliberate lesser-considered terms. Is your confidential business information protected when you share it with your software vendor? Who owns the customized software? And, what happens if you’re sued for using it? If you haven’t considered those issues, no worries. Let’s work through them together.

  1. Don’t Tell ‘Em … Unless: Often a business seeks customized software because it helps achieve something innovative that provides a competitive edge. That’s the stuff of a “trade secret”. To protect trade secrets, it’s important to limit who has access to that information, and have strong contractual terms in place to reinforce the importance of confidentiality. That way, a business can explain what it needs, and a developer can share the technical underpinnings for how to achieve the goal, with everyone in agreement not to blab. A word of caution – even with confidentiality terms in place, share only what’s truly necessary to achieve your objective. Keep the rest under your hat.

  2. Yours, Mine or Ours? If you hire and pay a developer to customize software for your business, don’t assume that you own it. Counterintuitive? Perhaps. However, unless you have a contract to the contrary, you may not own the underlying software program. The developers who authored the code (and/or their employers) typically own the copyright in the program, unless they explicitly assign those rights away. Software providers often use the same programming code repeatedly as a platform for several of their customers. Therefore, they have an important interest in maintaining its ownership. However, just as the software provider seeks to reinforce their intellectual property rights, so too can you. A well-drafted contract can reinforce your company’s ownership in its brands, copyrights, and trade secrets (such as customer lists, pricing information, business development plans, etc.). And, beyond protecting trade secrets, you may be able to negotiate certain exclusivities with the software provider to prevent them from servicing your competitors with software functionality similar to yours.

  3. Hold Me Harmless. Indemnification is a big word with a (fairly) simple concept. A contractual indemnity is a promise to hold someone harmless by paying the costs associated with a dispute. Typically, in a software context, a customer may request an indemnity from a software supplier in case the customer is sued for copyright infringement by a rival software provider. An indemnity is a reasonable ask because the customer didn't create the software, so they don't want to assume responsibility for defending it. However, if a developer customized the software to meet a customer's specific needs, the vendor may refuse to offer an indemnity. A step further, they may ask the customer to indemnity them. This is because the developer wants to limit their risks arising from customer requested changes to their standard software. Negotiating indemnities can be granular, but it’s an important measure to reduce costly legal expenses, such as defending a lawsuit in court.

Now, a word on practicality. Make the most of your time and legal efforts by negotiating a “master services agreement” with a software vendor who you’ll call on for project work repeatedly. That way, standard legal provisions like the contract term, confidentiality, trademark, copyright and trade secret ownership are negotiated just ONCE. Then, you can enter “statements of work” for discrete projects amongst business people, without re-opening negotiation on the baseline legal terms of your relationship with the vendor.

Like this post? Sign up for our newsletter.

We'll send you the good stuff right to your inbox!

______________

JoAnn Holmes ("Jo") is the founder of HOLMES@LAW, LLC. She serves as Outside General Counsel to select, intimate management teams for midsize companies. Likewise, Jo provides strategic support for lean law departments.

Jo founded HOLMES@LAW to provide agile, result-driven legal solutions. Beyond risk management, we help identify opportunities. The firm's focus areas are business law and strategy, commercial contracts and global intellectual property management. We build long-term relationships as trusted collaborators, and our flexibility consistently yields great value for clients.

HOLMES@LAW is also committed to service work, including through supporting local schools and leadership groups, as well as domestic and international charities. Since its founding, the firm has dedicated more than 200 hours to community service.

Contact Us to discuss how we can work together for your business success. HOLMES@LAW - Your Business Ally™.

Holmes, How … about the Disclaimers?

Information shared by JoAnn Holmes and/or HOLMES@LAW, LLC ("We or Us") is for educational purposes only. It is not legal advice. Each situation is unique, so the information We share may not be relevant to your circumstance. Until you enter a formal engagement agreement with Us, We are not your legal counsel, and no attorney-client relationship exists. So, please do not share any confidential information with Us, and please only interact with Us if you agree to these ground rules. Thanks!

© 2015 HOLMES@LAW, LLC. All Rights Reserved.

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Material presented on this website is not professional advice.  It is intended for information purposes only. Communications with HOLMES@LAW, LLC do not reflect an attorney-client relationship, and information shared will not be treated as confidential, until a formal representation agreement is executed. 

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