License agreements are typically given to accomplish the promotion, sale, making, or use of a product or a service.  For example, Lebron James might give a license agreement to Nike to use his name and likeness to sell the Nike Air Max Lebron 7 basketball shoes.  GEICO might license certain agents to sell its car insurance in a particular geographical territory.  Black & Decker might lend its brand name and corporate logo scheme to a smaller company to manufacture hedge trimmers.  And Microsoft sells a license to use its software.

Do I need a license agreement? Determine whether a written agreement is essential to your business.  Ask whether a licensing agreement helps you market, sell, make, or give use of the product.  If so, you need a licensing agreement with the party who is going to help you do this.  Licensing agreements may be a fundamental component that drives your business revenues.  If so, the document must be tailored to your business and this indispensable relationship must be reduced to writing.

What should be included in a license agreement? Work from the basics.  A license literally gives a permission or authorization in some way. It is a contract between two parties, a licensor who gives the license and a licensee who receives it.  The agreement simply records in writing how this permission or authorization will work and gives a specific description of the permission’s duration, cost, territory, and general use.  The key to a solid agreement is the precision with which these details are described and whether the two parties each can operate within those descriptions.

May I use the same license agreement over and over? Yes, depending on its purpose.  If you are licensing a purchaser with the permission to use your product, then the agreement granting this permission should be used repeated for similar sales to similar consumers.  If you accept a license from a celebrity who is going to sell your product, that agreement is dynamic and should change with the product, the celebrity, and period of time during the planned promotion.

Do I need a lawyer? Yes, of course.  Seriously, you need a contract lawyer who will put into writing the business relationship you have with your licensor or licensee and see that the terms and conditions of the license agreement do not stand in the way of your business relationship.  Also, the agreement must protect all fundamental rights and interests of your business, as well as the price of the license, which cannot be unknowingly compromised during negotiations.   This is a delicate balance that your lawyer can navigate, and it is his or her job to see that nothing is lost in the agreement-constructing process that you did not authorize.

Individuals and couples often times forget that Wills and other estate planning documents are ongoing, vibrant documents that need to be updated as personal circumstances change. I emphasize to clients that they should review their estate planning documents periodically to determine if changes need to be made. Examples of personal circumstances that clients must keep in mind for estate planning purposes include, among other things, marriage and divorce, birth of children, death of a beneficiary or other loved one, starting and selling a business, the purchase or sale of significant assets like stock and real estate, and any other significant increase or decrease in the size of one’s estate.

For instance, if the person you designate in your Will as your Personal Representative dies or is no longer in position to act on your behalf, your failure to name a successor P.R. could allow someone who you did not intend act as your P.R. This circumstance also applies to the person you name as the Guardian of your minor children, any Trustee of a Trust you form, as well as other estate planning documents like the attorney-in-fact named in your Power of Attorney and the Health Care Agent named in your Advance Medical Directive.

Also be aware that if you sell stock or real estate that you specifically left in your Will to a beneficiary and then fail to change your Will to replace that gift, the beneficiary will end up with nothing, as the proceeds from such a sale will go into your residuary estate and be distributed accordingly.

My message is that you should remember to update your estate planning documents when significant life events occur. As a best practice, I recommend that my clients review their estate plan every two years in order to prevent an error which could prove extremely costly to those the clients are intending to help in their Estate Plan.

Candor: A Necessary Boardroom Ingredient

Candor is one of my favorite topics in business and in life.  The first person that comes to mind when I consider this topic is Jack Welch, former CEO of GE.  Although I have always been one to speak rather candidly, it has not always been well received for obvious reasons…but that doesn’t mean it’s not valuable.  In fact, I think it is absolutely critical, especially in business.  As for your social circle, or your home life, tread carefully and implement slowly!

The Jack Welch Way:

In terms of what is socially acceptable, candor walks a fine line.  However, in business, it is essential, just ask Jack Welch.  I’ve read “Straight from the gut” and “Winning” and since then have become much more comfortable with being candid, especially in business.  Of course, there is always room for empathy, especially when dealing with subordinates, but that shouldn’t cloud the message.  The value of candor ties directly to the value of good and accurate communication/feedback and ultimately leads to better results.

Bringing it into your culture:

The topic of candor in business, although recognized as valuable is difficult to implement and ingrain into a culture.  As with anything though, it must start with the leadership of the organization.  It must exist in the boardroom and at the senior management level first; it all trickles down from there.

Of course, as it relates to our project, we are encouraging small businesses to implement advisory boards for their business and then providing the tool (boardmybiz.com) to make it simpler and easier than it’s ever been, especially for the small business world.  We must also mention however, that without some other key ingredients, your board will not perform at an optimal level.

Candor in the Boardroom:

In the boardroom, especially a small businesses advisory board meeting; the CEO/owner should be comfortable enough to allow for open communication and be prepared to listen and discuss difficult realities of her/his business.  The advisors should be candid in their advice, questions and discussions.  If the tension heats up; good, then they are serving their purpose.

If those difficult discussions cannot occur in the boardroom where can they occur?  Are you better off getting lip service or the truth, candidly and without hesitation?  If you can stomach it, you will learn and grow from it, and your business will follow in your path of growth.

Candor is one of the most important ingredients to add to your boardroom, and hopefully to your culture.  If you want a full dose of how to make this happen, I suggest you read, “Winning” by Jack Welch.

For a quick dose of it, go here: http://www.welchway.com/Principles/Candor-(1).aspx

Best of luck!

For more information or if you would like discuss ways to help your organization with this topic, please contact us at chevaun@advisorybg.com

If you would like help building your advisory board or would like to build your own board, please visit us at www.boardmybiz.com.

I frequently tell my franchise and business clients to be wary of automatically including an arbitration clause in a franchise agreement or other contract they execute. Several years ago it was savvy for a business owner or franchisor to include mandatory arbitration in their agreements. Now, many of the reasons that supported the inclusion of arbitration clauses have been diminished, making the inclusion of mandatory arbitration in many contracts a questionable strategy at best. I now advise my business and franchise clients against arbitrating disputes for the following reasons:

1. Arbitrations are not “cost-savers” like they used to be thanks to the multiple fees associated with the process. Unlike judges, arbitrators are paid by the parties on an hourly basis. It is therefore in an arbitrator’s financial interest for the case to reach a hearing, regardless of the claim’s merits. In addition, many hearings go on much longer than necessary, allowing witnesses and testimony with questionable relevance to be heard. As a result, arbitrator’s fees can be quite significant for even routine business disputes. The arbitrator’s fees are of course in addition to the fees that business clients pay to their own attorneys for handling the matter, plus the hefty filing fees that many arbitration forums charge as well. For example, the American Arbitration Association, the preeminent arbitration forum in the U.S., charges filing fees ranging from $300 to $2,500.00 for commercial arbitration disputes. Contrast these expenses with trials and other court hearings, where judges have no financial interest in prolonging a case, and filing fees are minimal.

2. The distribution of who pays the arbitrator’s and other fees can disfavor the party bringing the action. The filing party, known as the Claimant, will be responsible for paying not only the arbitration filing fees, but also its portion AND the other party’s portion of the arbitrator’s fees mentioned above should the defending party, called the Respondent, refuse to pay its share of such fees. In such a case, the Claimant must pay all fees in order for the matter to go on, yet the Respondent remains entitled to participate in the arbitration process. If the Claimant fails to pay all of the fees owed to the arbitrator, the arbitrator will likely suspend or dismiss the action entirely. Because there is no incentive for a Respondent to pay its share of an arbitrator’s compensation or other fees, the absurd ersult of the Claimant paying all fees happens more than one would think. Combined with the fees a Claimant must pay to its own attorney, it is easy to see why a business owner would question the use of arbitration in the first place.

3. Arbitrators have far more discretion to rule than judges, sometimes in spite of the evidence presented. The arbitration process is much less formal than a trial. While some informality saves the parties time and expense and speeds up the process, the biggest informality can alter the entire outcome, namely, the fact that the rules of evidence do not apply to arbitration. As a result, arbitrators are free to allow documents and testimony that is questionable as to veracity and authenticity into evidence, even though such evidence would not be permitted in a court of law. In plain terms, an arbitration hearing can literally turn into a free for all, with the arbitrator allowing all kinds of testimony and documents to be factored into an award. This sort of setting can severely hurt a business client who is relying strictly on the language of documents and the actions of the parties, while in turn favoring a party hoping for chaos, basing its case on hearsay and unsupported and unreliable accusations.

4. Judges are generally more experienced, more versed in the law, and otherwise more qualified to hear disputes than most arbitrators. While not every judge is equally qualified, most judges have been vetted by their local and state bar organizations, and either elected by voters or appointed by politicians. Judges have a track record that can be reviewed and relied on. Judges in most courts serve on a rotational basis, hearing different types of cases and thereby gaining differing experiences. Judges have resources like law clerks to research the law for them. So while judges may lack technical expertise in a certain area, they make up for that my relying heavily on the attorneys and evidence presented in a given matter. Whatsmore, judges must construe existing law to base their rulings on, or else risk being overturned on appeal. Arbitrators, on the other hand, are in most cases practicing or retired attorneys with a specific area of expertise who have asked to be appointed to serve. Many times, an arbitrator will have only a peripheral knowledge of the subject of the arbitration, yet without the experience, knowledge of the law, or resources to ensure that his or her ruling is correct on the law. This set of circumstances can often times lead to inconsistent or downright baseless arbitrator’s decisions.

5. Judges produce formal opinions reciting the law relied on and applying the law to the facts to reach a decision. Many arbitrators, meanwhile, can issue awards without including their specific legal reasoning for an award. For purposes of appeal, judges are required to produce formal opinions citing the issues, facts, law and conclusion in an orderly fashion. This allows parties to focus many times on a distinct area for appeal, and allows appeals courts to easily review the court’s basis for a decision. Conversely, many arbitrators are required to issue only a narrowly written award unless otherwise agreed to by the parties. Even then, an arbitrator issuing a “reasoned award” may not satisfactorily explain the evidence relied on, the law used and how the arbitrator’s conclusion was arrived at. This not only makes it difficult for the parties to decipher how a particular arbitration award was arrived at, but more importantly, makes the record for appeal nearly impossible.

6. Even if an arbitrator issues a reasoned award, the right to appeal an arbitration award is extremely narrow when compared to a party’s ability to appeal a court ruling. In most instances, losers at trial have the right to appeal the merits of a court’s decision to a higher court “de novo”, using almost any substantive or procedural issue available to them. The basis of an appeal of an arbitration award however is severely limited, and many times requires the appealing party to clear such high hurdles as proving fraud, corruption of the arbitrator, or the arbitrator exceeding his or her powers. The difficulty of appeal, when combined with the erratic decisions of some arbitrators, is another reason to forego arbitration in favor of litigation, except in a specific set of circumstances discussed with and approved by my client.

Every franchisee, before purchasing a franchise, receives from the franchisor a Federal Disclosure Document (“FDD”), which includes the franchise agreement that will eventually be executed by the franchisor and franchisee. This article contains five questions every franchisee should ask when reviewing a franchise agreement.

Over the years, I’ve worked with many lawyers. Despite the fact that startups are relatively small, our legal needs are complex. You can’t skimp with lawyers if you’re building a startup. If cousin Joe has a general practice, he won’t do the job. You need specialized expertise.

One such specialist is Suzanne Dingwall Williams from Venture Law Associates in Toronto. As her firm’s name suggests, she’s pretty focused on serving the needs of startups. She has written an excellent post on what it means to be an entrepreneur’s lawyer and asked some entrepreneurial types such as myself and Alec Saunders to add their comments. As a former VC, Suzanne has seen all sides of this important relationship. My thoughts on the ideal startup lawyer are below.

The ideal startup lawyer:

Wants to do business: Great startup lawyers balance the need to protect their clients while enabling them to do what they want. The conversation goes something like this: “Here’s what I need to do. Now how do I do it and stay out of jail?”

Speaks plainly: Great lawyers speak in plain English (or whatever language you speak natively). Those that speak in legalese rarely rise to great heights.

Is committed to the startup community: During the dot com phase, all the big firms started trolling for startups, when the bust came, they ran for the covers. I want to work with firms and lawyers that are truly committed to startups. That commitment manifests itself through i.) The people they assign to your file (if you get junior people only, it’s not a good sign); and ii.) Their billings (see below).

Charges “reasonable” fees: Startup lawyers need to take a life cycle view to their client relationships. They should expect major discounts early on and hope to make these up as the company builds towards an exit.

Is connected: This is especially relevant for new entrepreneurs. Your lawyer should provide more than just legal advice. They should also be able to connect you either to VCs or to potential partners, etc.

Has domain expertise: i.e., in fundraising. It’s not enough for your lawyer to come from the corporate finance department in their firm. They must have relevant and recent deal flow expertise in the venture space. They should know the NVCA templatescold and should know what current market standards are for deal terms like liquidation preferences.”