Whilst I appreciate that I may be doing myself out of work, the key piece of advice I would give to any growing company is that it is hugely important to put the time and money in NOW to get strong contracts and agreements in place. Avoiding or neglecting to put these measures in place at the beginning could mean you find yourself facing a difficult (and potentially costly) dispute situation further down the line - one that could have been avoided had you put in place the right agreements and contracts at the right time.
Do you have a shareholder agreement in place?
In relation to your company, take the time to think about how it is (or should be) set up. If you have more than one shareholder then think seriously about putting a shareholder agreement in place which will set out, among other things, what happens in the event of there being a dispute between the shareholders. You might not want to think about the possibility of things going wrong at this stage but having an agreement in place will make things far easier to sort out if things don’t go according to plan in the future.
Review your supplier contracts carefully
You may enter into all sorts of contracts when starting up your company from mobile phones to coffee machines without thinking about them too carefully. Are they going to match the longer term requirements of your business? Think particularly about how long you are signing up for with new suppliers and how that matches up to your long-term business strategy. Is what you are signing up for going to be suitable for how your business will look in 2, 3 or 5 years’ time? Does it take in to account whether you may have grown, moved premises or perhaps not fulfilled your growth plans? Some contracts may have an early termination fee if you cancel them before the end of the term and so it’s important to think through the different scenarios before you sign up so that you can manage your risk accordingly.
Watch out as well for contracts which renew automatically unless you cancel them – take the time to diarise the dates by which notice has to be given so you can make sure you terminate if you need to, rather than being tied in for a longer period that you might not need.
Consider customer contracts
With regards to your customer contracts, a well-crafted set of terms and conditions can be invaluable, particularly if you include limitations and exclusions of liability, but there are several things you need to remember when drafting a customer contract:
- Terms and conditions are just the start
These will only form part of your contract if they are incorporated. There is no point having them if you leave them in a drawer or contract on your customer’s terms. You, therefore, need to ensure that you organise your business processes so that the incorporation of your terms and conditions forms part of your new order processes.
- Manage your clients' expectations from the outset
Terms and conditions by themselves don’t necessarily describe exactly what you are going to deliver to your client. One of the main areas where I see disputes arising is a mismatch between what the customer thinks they are going to get and what the tech company thinks it is required to supply. Often the customer is expecting the equivalent of a Rolls Royce and is disappointed when they are delivered a Ford. If the contract is unclear from the beginning as to exactly what is being delivered then this can lead to real issues in the future.
- Don’t promise a Rolls Royce and then deliver a Ford
Many of the dispute issues I see can be traced back to the sales process. Make sure that your salespeople don’t overpromise what you intend to deliver in terms of the product itself but also in relation to timing and delivery. As a new and growing business, it can be tempting to oversell to try to win new customers but this can seriously backfire.
Protect your intellectual property
Ensure that you give proper consideration of the protection of your intellectual property. It is important to ensure that your product and brand are protected, where appropriate, but also to make sure that you don’t breach other organisation’s intellectual property.
Don’t forget to review regulatory issues
There are various regulatory issues to consider. Data protection is a hot topic, particularly following the introduction of the General Data Protection Regulation (GDPR) earlier in 2018. The Information Commissioner’s Office is starting to crack down on organisations that fall foul with the power to issue hefty fines. Seek advice early on about what you need to do to comply and to make sure that your business practices are then set up accordingly.
What should you do now?
None of these tips should prevent a tech company from taking an agile and flexible approach to its growth. The important thing to ensure is that you put in place a structure that will help to protect you from disputes but which is flexible enough to adapt and grow as your business develops.
If problems start to develop then it is likely to be more effective in the long run to seek legal advice sooner rather than later to see if issues can be nipped in the bud. Engaging a dispute resolution lawyer is not just about going to court but also about pro-actively helping to manage disputes behind the scenes with the aim of avoiding a full-blown dispute.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.