To Find Best, Experienced, Leading SaaS Contracts Attorneys & SaaS Contracts, Agreements Negotiations Lawyers call Andrew S. Bosin LLC at 201-446-9643. Andrew can review, draft and negotiate SaaS Master Services Agreements (MSA), Subscription Agreements, Reseller Agreements, Customer Agreements, EULA Agreements, SLA Agreements and SaaS Enterprise Agreements from offices located in New Jersey just outside New York City. Andrew helps SaaS companies across the USA located in Charlotte, Los Angeles, Cincinnati, Indianapolis, Salt Lake City, Phoenix, Rochester, Tampa, Orlando, Washington DC, Connecticut, Houston, Pittsburgh, New York City, San Diego, Columbus, Ohio, Las Vegas, Raleigh, Nashville, Buffalo, Boston, Atlanta, Kansas City, Miami, Albany, Denver, Chicago, Long Island, Cleveland, Silicon Valley, Dallas, San Jose, CA and Oklahoma City | email@example.com | 201-446-9643.
Andrew has also been an entrepreneur who has done the startup grind as the General Counsel of a Delaware C Corporation SaaS business that he launched and scaled with partners. As an owner of a SaaS company Andrew’s duties did not stop with being the lawyer for the business. Rather, Andrew participated in most of the company’s business functions including marketing and sales, on-boarding new customers, raising capital and overseeing the software development process.
Needless to say, there are probably only a handful of SaaS attorneys in the US who at the same time while building and scaling their Tech Startup Law Firm also devoted thousands of hours over a five year period in building and scaling their own startup company. The terms “lean startup” “in the weeds” or “from 50,000 feet” aren’t just terms to Andrew that he read online. He lived and breathed these words every day he was an entrepreneur.
From his own startup experiences Andrew understands organically what it means to create a budget, financial projections, sales decks and pitch decks. Andrew understands also how to project costs, expenses, capex and how to effectively and properly budget raised capital. One of things that Andrew tries to impart on startup entrepreneurs is that they are going to need a lot more money than they think in having a chance at even building and scaling their company let alone having any success.
One of the other things that Andrew tries to help his startup clients understand is what it is like living the startup grind in that sometimes the company takes two steps forward, one step back, rinse and repeat and that building a startup is often times more frustrating than satisfying.
One of the other things that new entrepreneurs who perhaps were getting a steady paycheck before taking the startup plunge really have no conception of is the mental, emotional and financial toll being a startup founder takes on you. When you’re working for a paycheck if you are doing a good job you really don’t think about not having a paycheck. Unless your laid off or fired for a reason having nothing to do with your performance you don’t think about not having the ability to pay your bills.
It’s absolutely the opposite in a startup. All you think about is money and will the company have enough to survive and if not when will you go out of business. You also think about when the company is going to have revenues if you have quit your job and have no salary. Sometimes it will seem like everyone you know is prospering or doing better than you. That’s why being in a startup is not for everyone. If you’re going to join a startup you need to be prepared for the mental, emotional and financial toll it will take on you. That’s why Andrew encourages entrepreneurs to read everything they possibly can about what it’s like to be in a startup.
Andrew provides the best personal service to his clients. Andrew’s clients can text him day and night and he typically responds within minutes. Andrew is also accessible nights and weekends.
Andrew has earned 25 Google five-star Client Reviews.
To read all of the Top Rated, 5-Star SaaS Attorney Reviews, Ratings and Testimonials Offered By Satisfied Clients please view the Andrew S. Bosin LLC Google My Business page.
You can also email Andrew at: firstname.lastname@example.org.
As a Tech Startup who represents more than 100 startups, Andrew gets asked some of the same questions again and again. In the interest of saving some time here are a few key points to inform you about some of the key topics in the business of starting/running a start-up.
I’m ready to get started, what legal issues should I think about when deciding on the best structure for my business?
As with any decision you make, you need to have clear goals and realistic expectations in order to make the right decisions with respect to your business corporate structure. Some things to think about should be:
- Clear goals
- What is your exit strategy and time horizon for being in a startup? Do you want to exit after a VC invests? Do you want to pass the company to your children, or do you want to sell the business in three to five years to a strategic partner?
- Do you want some type of consulting business, a brick and mortar, or are you creating a high-technology company?
- Do you want to keep the business closely held, or do you want to take it public and have a large ownership base?
- Realistic expectations
- How much capital do you believe you can realistically raise? Is your business something that venture capital or angel investors would want to invest in?
- What do your revenue and expense projections look like? Will the business be making money from day one, or will you need $1 million to $5 million and 1 to 2 years before you can realize a profit?
- Do you have another job that will provide you with income until your startup makes money?
- What are the things of value that the owners will bring to the business, other than their time and energy (e.g., ability to develop software, creating intellectual property, investment monies, other assets)?
- Best structure – even within the concept of “structure,” there are many things to consider:
- Should your company be an LLC, or a Corporation (S-corp, C-corp)?
- Should you contemplate “vesting” of founder’s stock in anticipation of future investment monies from angels or VC’s?
- What happens when a founder leaves the company? Do they stop vesting in stock? Can you claw any stock back from them?
- How can you protect your personal assets from the liabilities of the company?
This information just scratches the surface of this topic. It goes without saying that you should ask your legal counsel and accountant to review all of your corporate business structure options to make sure you understand the tax, business and legal issues involved and to help make sure that you and your co-owners choose the best legal structure that works for all.
Below are just some of the issues that Pre-A Round SaaS Startups should think about. This list is not dispositive and not being offered for legal advice but rather for information purposes only.
Both entrepreneurs and serious investors prefer startups that have incorporated in Delaware because it offers the startup the greatest flexibility in terms of structuring boards of directors, stock issuance and preference, and voting rights. It also provides the broadest privacy protections. Specifically, there is no requirement to list director or officer names on formation documents.
For these reasons and more, serious investors typically prefer companies that incorporate in Delaware as a C-Corp.
On the flip side, there are some negatives and disadvantages to forming a company in Delaware as you will be required to file an annual report in Delaware. Also, Delaware requires that you regularly submit franchise taxes, even if you’re paying those taxes to the state in which you are already doing business.
Startup Investors Prefer Delaware C Corps.
A Delaware C Corp is typically the preferred business entity for startups seeking to raise money from serious investors. A Delaware C Corp from a corporate business management perspective is so much easier to operate than an LLC which requires continual amendment of an operating agreement every time your entity makes a major business decision. On the flip side, with a Delaware C Corp let’s say hypothetically you need to issue more shares to bring on additional talent all it really requires you to do is to draft a resolution authorizing the C Corp to take such action and take a vote of the shareholders. Typically, early stage startup companies consist of several people with one or two owning the majority of stock so voting and approving of such measures is very easy to accomplish in a Delaware C Corporation.
On the flip side, if you incorporate as an LLC let’s say in the state where everyone in the company is located there is a possibility that the laws of that state are not investor friendly or the courts are not pro business or the state imposes huge taxes on businesses like California.
If you need to raise capital to start your SaaS business or anticipate needing funds to hire employees, developers, etc., you should give serious thought to incorporating as a Delaware C Corp.
In any event, it is critical that you consult with and seek the advice of your accountant to make certain that a C Corp is suitable for the type of business that you will be operating especially if you are concerned about how much in taxes you will be paying. With that said, unless you have tons of orders for your SaaS application before you have even incorporated the amount in taxes you “might” pay at some point should be the least of your concerns and making sales should be your top priority.
Some startups make the mistake of issuing all of the stock in the first round to the founders. This presents two major issues or obstacles in trying to attract investor monies.
If the company needs to make key hires, or bring on more shareholders to help the company grow in exchange for sweat equity or take in investor monies it will have to issue additional shares of stock which means everyone will get diluted. This is not a good look for any startup company pitching an investor to invest in the company. Investors want to put their money into startups being run by mature, business minded entrepreneurs. This doesn’t mean that a 22 year old doesn’t fit the mold. It’s not so much the age of the founders but rather their attitude, mentality and work ethic.
If a group of entrepreneurs pitches an investor and the startup collectively has very little in the way of business experience among its founders it is going to either have to have a product or service that will offer tremendous value in the marketplace or demonstrate to the investor the seriousness of what they are doing with creating very sophisticated and well thought out business plans and financial and cost projections.
It is also likely that any serious investor will stay away from a startup where the founders have no skin in game. This means that if a founder fully vests in shares contemporaneous with incorporation any serious investor will be concerned with some of the founders leaving the company with all of their shares.
If your startup issues all of its common stock immediately there will be no stock left over to go out and get some key hires that you will likely need during the first year of your startup’s existence. Any investor who is seriously thinking about putting money into your company will question why you issued all of your stock to the founders in the first round.
If you incorporate in Delaware you need neither a shareholder agreement nor an operating agreement to govern you company and your company is not mandated to follow the rules of The New Jersey Revised Uniform Limited Liability Company Act (RULLCA).
So how does your company govern itself by just filing to incorporate in Delaware? Your company should have by-laws drafted, which are a set of rules the shareholders would need to follow. And, the state of Delaware would issue Articles of Incorporation to the C Corp.
Once filed, your corporation can elect both a board of directors and officers. Your company can then authorize itself to sell shares in the company. You would do this by drafting a resolution and having the owners of the corporation vote on it. Then, the board, assuming it’s the owners and perhaps one other person would hopefully ratify and adopt the resolution. You can do as many resolutions as you desire so that your business operates in an orderly manner. For example, you can do a resolution to change the address of the company or how many shares the company is going to sell to shareholders.
If your business is contemplating signing an agreement with a SaaS vendor here are just a few of the issues you should think about before signing the contract. This is for information purposes only and not legal advice.
With traditional enterprise software, your IT department can ballpark what it is going to cost to purchase the software, install it on your servers and how much each month it will cost to maintain the software. With SaaS software, because there are so many moving pieces, i.e., number of users, amount of data stored and guaranteed performance minimums, it is best to get in writing from the SaaS provider what your monthly costs are going to be to access the services.
While traditional software typically charges a one-time fee, the user of SaaS software will most likely pay a monthly fee to access the software. And, unlike traditional software, the user of SaaS Software does not own a copy of the software or have a license to use it.
You can break down monthly costs pretty easily. You need to nail down how many users will be able to access the service each month and what that cost will be. And, is it a set number of defined users that can access the services such as 20 employees with their own log in or can 20 random employees, no matter who, have access to the services at any given time?
You also need to find out how much of your company’s data will be served and stored on the SaaS provider’s servers. You want to also see if you will be charged an overage fee and how much.
The Need For Language in a SaaS Agreement About SaaS Service Uptime Availability
Most SaaS vendors should agree that their customers whether enterprise or not should have a reasonable expectation that the SaaS services or application be available and able to use as if the SaaS services were placed in the customer’s networking system maintained on the customer’s own premises. If a SaaS application is not working or is unavailable, the damages caused to the customer’s business could be catastrophic especially if the SaaS Application is critical.
That’s why it is important that the SaaS Provider contractually agree to make the SaaS Services/Application available and accessible to use at least 99.5% of the time all day every day of the year. The part of the SaaS agreement that this commitment is made is called the Service Level Agreement or SLA.
It is also common for SaaS vendors to give monetary credits to the customer for failing to achieve a certain up time or availability. For example for each 1% up time or non-availability the customer could receive a 1% credit back on the contract amount.
Should Agreements Have Language With The SaaS Vendor Assuming Liability for a Data Breach?
Because almost every function we perform on our cell phones from Linkedin to Instagram to Google Gmail is a SaaS Application why do SaaS customers have concerns over a SaaS vendor hosting/maintaining/serving their company’s data? Despite the state of technology and that fact that there is widespread use of robust security, intrusion detection systems and encryption to name a few there is not a week that goes by that a large data security breach is not reported. Because SaaS Vendors and Providers by their very nature are in the business of protecting other company’s confidential data and information and must do a good job of it or else a better more equipped competitor will crop up some say that SaaS providers sit in a better position to protect customer’s data that the customer.
A SaaS customer should expect pushback in contract negotiations if it demands that the vendor pay “consequential damages.” What are consequential damages? These are damages that could be anticipated as a result of a breach of contract. Most would agree that if a customer’s data is compromised and this breach caused them to suffer lost profits that this is a foreseeable damage flowing from the breach. Unfortunately, for SaaS Providers this type of damages could well exceed the monetary amount paid by the Customer for the Services in the Agreement and could cause the SaaS Provider to go out of business.
Despite the catastrophic consequences a data breach might cause a SaaS vendor in the purse strings, SaaS customers will likely attempt to hold SaaS vendors liable for any data loss, damages, intrusion, or unintended breach or disclosure.
Most SaaS providers will not agree to any clauses in the SaaS Agreement where they are responsible to accept consequential damages liability. This is because all it takes is one breach of data and a client suffering substantial damages for the SaaS vendor to be put out of business. On the flip side, most SaaS customers enter into contracts with their own customers obligating their companies to perform certain services. In how many of these agreements do the SaaS Customers’ obligate their companies to accept consequential damages liability? The answer is probably close to zero.
The best course of action for a SaaS customer to take is to try to convince the SaaS provider to accept liability for direct damages from a data breach for an agreed upon limit amount based on the total value of the contract. Hypothetically, if the contract is $50,000 for one year perhaps the SaaS Vendor would agree to cap damages caused to the customer in the amount of 1x the contract.
What is an Application Performance Warranty?
An application performance warranty states that the SaaS provider will provide the Application to the customer conforming to specifications or documentation provided to the customer by the provider. If the application does not meet the published standards provided by the SaaS provider or there is a defect or problem with the application that cannot be cured by the provider then the provider should prorate the remaining months left on the contract and charge the customer only for the time that the application was up and running and working properly.
Access To Your Company’s Data
There is some downside to using SaaS Software and this is with regard to control of and access to your company’s data. If the services are no longer available for whatever reason because the customer fails to pay the bill or the SaaS provider goes out of business the customer will no longer have access to the services and will likely lose all of its data.
With regard to a SaaS provider filing bankruptcy, there is a way around the lack of protection and ambiguity in both the Bankruptcy Code and relevant case law. The agreement between the customer and SaaS provider can still be drafted in such a way that the customer still maintains the ability to access the cloud services provided otherwise by the SaaS provider.
This is accomplished by drafting software licenses and/or SaaS agreements as licenses to intellectual property to invoke section 365(n) of the Bankruptcy Code. One needs to be careful to draft the agreements as a present license grant not contingent on some event happening or a future grant. A present license grant would allow the customer to use and access the licensed software and compel the SaaS supplier to provide the software source code, object code, and/or related documentation in the event that the SaaS provider attempts to reject the SaaS agreement under 365(a).
Service Level Agreements
An important part of the SaaS Agreement is holding a SaaS provider to a minimum performance standard in connection with a SaaS agreement. An example is that the service will have an uptime percentage of 99.9%, meaning the service is guaranteed to be up, available and running live 99.9% of the time. This performance standard is known as a Service Level Agreement (SLA). You also need to have the Agreement spell out how the performance standard will be calculated.
Typically, customers are given one day of credit for each hour that the SaaS service is down and not accessible. Although the SaaS provider would likely never provide the customer with this information, I would ask to see documentation showing that the SaaS provider has the same minimum performance standards from the entity that hosts and maintains the services on its behalf.
Here is the scenario. What if the SaaS provider guarantees in your agreement that the services will have an uptime of 99.9%. On the flip side, what if the SaaS provider in its agreement with the company that serves and hosts its services is only paying for up time of 99.2%. This means that the SaaS provider is taking a risk that the performance standard or uptime for its services will never fall below 99.9%.
If you’re a SaaS company and trying to figure out legally how to prepare to do business in Europe I would recommend at a minimum doing the following:
- Explore and look into your SaaS service or application being hosted by a cloud managed service provider located in the EU;
- Enter into SaaS agreements with European clients that incorporate and deal with EU Data Protection Regulation Directive 95/46/EC;
- In addition to obtaining legal advice, you should seek out the services of a company that deals specifically with protecting the personal information of EU residents to help comply with the GDPR.
- Draft an EU Data Processing Agreement and display it visibly on your website.
- Consult with your commercial business insurance company to make sure you have adequate coverage for doing business in the EU.