You’ve put together your website or app offering your Great New Service™, but now you’re trying to figure out the dreaded Terms of Service. Everyone clicks the box to indicate they agree before signing up for the service, but no one really reads these absurdly long agreements. What do you really need to put in your small business’s terms of service, and, perhaps more importantly, why do you need one in the first place?

Just like you shouldn’t do business on a handshake, you shouldn’t operate your business on a handshake either. But too many entrepreneurs regularly go into business without any formal documentation. If you have business partners, so-called “silent” investors, or took money from friends and family, I cannot stress enough how important it is to have the terms of these partnerships documented in a formal written agreement. Otherwise, it’s just a dispute waiting to happen.

If I had a dollar for every time a client or prospective client told me that their business partner/best friend/family member would never sue them, I’d be writing this article from a beach in the Caribbean right now.

​There are a few critical questions that every company operating agreement* should answer.

​A licensing agreement is a contract in which you, the licensor, gives someone else, the licensee, permission to do something that they otherwise would not have the right to do. There are many situations in which a small business might use a licensing agreement:

• If your business is only reaching customers in a particular region, you might enter into a licensing agreement with another business to sell your products or services in a different region. 
• If your business develops software, you are typically giving end users permission to use the software in a particular way, but you are not selling the underlying code that makes up the software. (This is also true of businesses that operate under a software as a service or SaaS business model.)
• If you create content for others, you have to decide whether you are giving up all of your rights in that content, or simply giving your client permission to use that content (in which case, you retain the right to re-use that content with another client).
• If your business has a proprietary process or patent rights in a particular technology, you might monetize that confidential information by giving another business the right to use that confidential information.
• If you franchise your business or offer a business opportunity, you are licensing your brand for someone else to use.

​While licensing agreements need to be customized to fit your particular business situation, there are some common terms that most licensing agreements should address.

​You’ve been diligently pursuing your marketing plan, and your dream client is finally interested in working with your business. You take some time to hammer out the details, maybe trading multiple emails and phone calls, sometimes even text messages. At some point, the haggling concludes and you get to work providing your service. At this point, one of two things often happen:

​If you’ve ever found your business in one of these situations, you’re definitely not alone. These situations illustrate exactly why you need to use written contracts in your business and not just rely on a handshake and a few emails. 

This week we continue our series on raising money from investors. In Part 1, we covered why this complex area of law matters, even if you’re just raising money from friends and family. Complying with securities laws requires that you register at both the federal and state level or comply with an exemption (again, at both levels). In Part 2, we explained the common exemptions to registration at the state level. In Part 3, we looked at the common exemptions at the federal level. As we explained there, some of the federal exemptions leave quite a bit of room for interpretation, causing some businesses to rely instead on certain “safe harbor” provisions. 

Just what are the "safe harbor" provisions? Can you ever advertise that you're seeking investors? And is an offering document really necessary?

In Part 1, we covered why securities laws matter for small business owners who are trying to raise money to start or grow their business. Remember, anytime you raise money by promising some sort of return on investment, then securities laws apply. And if securities laws apply, then you must either register at both the federal and state levels or be exempt from registration. Not surprisingly, most small businesses try to fit within an exemption from registration to avoid some of the legal complexity. In Part 2, we discussed common exemptions to registration at the state level. This week, we turn to some of the common federal exemptions.

In Part 1 of this series, we explained how securities laws impact small businesses that are trying to raise money. Before asking someone to invest in your business, you must comply with both federal and state laws, and you must either register (at both the federal and state levels) or be exempt from registration. Not surprisingly, most small businesses try to fit within an exemption from registration to avoid unnecessary filing fees and regulatory complexity.

So what are the common exemptions Ohio small businesses rely upon at the state level? (Remember, we’re discussing investors who are located in Ohio. If your potential investors are located in another state, you would have to look to that state’s securities laws to determine whether there are any exemptions from registration in that state.)

Raising money is a critical concern for most start-ups and small businesses. Whether it's seed funding to get the business started or raising capital to take the business to the next level, every business needs money (and probably more of it). But it's not as simple as offering potential investors an opportunity and then letting the money pour in. Anytime a business seeks to raise money by promising a return of some sort on the investment, then securities laws apply. This includes offering an ownership interest in the business (whether that's stock in a corporation or a membership interest in an LLC) and even debt obligations like promissory notes. In this series, we'll break down these securities laws and how they apply to small businesses.

Being an entrepreneur is probably the hardest job in the world. We have a passion about something that we want to share, something that we think will make a difference. But so often, we're either going it alone or with a very small team. As a result, we have to wear all of the hats: Chief Marketing Officer, Sales Rep, Widget Maker, Service Provider, Guest Relations, Financial Officer, HR Department, CEO, and janitor. And if that's not enough, there's still life outside of the business! Many of us are still spouses, parents, caretakers, community members, hobbyists...

So what happens when life happens AND you have a business to run?