Legal Lessons for Nebraska Start-Up Businesses - Part 1 - Document Joint Ventures and Agreements

Are you creating a start-up company in Nebraska?  The best ways to avoid common legal pitfalls that start-ups encounter is to

1. document your key contractual relationships;
2. —avoid oral or informal joint venture agreements; and
3. safeguard your trade secrets.

I will go into more detail about how to protect your business below.

Make Sure Agreements are Enforceable 

Many start-up founders believe they have binding contracts with others.  However, you should keep in mind what makes an agreement enforceable.  In order for an agreement to be enforceable there must be meeting of the minds.   That means that both parties must have the same understanding regarding what has been agreed to, and the same understanding of the main terms.

In order for an agreement to be enforceable there also must be an offer plus acceptance supported by consideration.  That means that one party must make an offer, the other must clearly accept, and some kind of consideration (whether it is money or trade of services) must be agreed to be exchanged.  —



Writing and Documentation May be Required

—Generally, an oral agreement is enforceable but will often be hard to prove. Without documentation of the contract, the parties will have different understanding of the agreement. If you want to make all the terms of an agreement enforceable, document it in writing.

Nebraska Statute 36-202 - In the following cases every agreement shall be void, unless such agreement, or some note or memorandum is in writing, and signed by the parties:
—(1) Every agreement that, by its terms, cannot be performed within one year from the making;
—(2) every special promise to answer for the debt, default, or misdoings of another person; and …
—(5) every agreement for the repurchase of corporate stocks, bonds or other securities.

Types of Agreements
—There are three basic types of written agreements:
—agreements to agree
—letters of intent
—and fully defined, binding agreements

Agreements to agree simply state the intent to continue negotiating. While terms might be mentioned, these agreements only commit the parties to continue to work towards a final agreement. 

—Letters of intent —normally state the basic terms of an agreement, but leave the finer details for later
—it is critical that you understand whether the agreed terms are immediately binding or if there will be no binding agreement until all terms are nailed down —it's a good idea to include a clause that defines which provisions are presently enforceable and which are not

Document Joint Venture Agreements

—Startups often collaborate with other companies and individuals on technology or financial aspects of their business. In most situations, partners will first sign a confidentiality agreement, obligating each to safeguard and respect the confidentiality of the other's information. 

—If you form a relationship without any further documentation, you're asking for trouble.   For example,  geologist named John Walker entered into an agreement with LaFarge North America in 2006 to conduct a joint venture on a stone quarry project in Haiti. Walker provided LaFarge with data, financial projections, startup costs and marketing analysis. But, the parties never put together a written joint venture agreement. The relationship later fell apart and LaFarge took Walker off the project. Walker sued for breach of an oral agreement, but the court dismissed Walker's claim because of the absence of a formal, written agreement.

—In these joint development situations, startups will often sign a confidentiality agreement or stamp confidential on its documents and then work with the other company for six months or more before one party severs the relationship.

—The dismissed party finds itself with oral understandings about rights to use technology or to receive equity or payment, but no documentation. The other party may be confronted with claims against its business model or property. 

—Courts will often reject both parties' claims based on inadequate documentation. Even worse, the parties might find that they have lost or compromised their trade secrets or confidential information.
—Don't begin working with a partner without first documenting the relationship. If the relationship with your partners changes, make sure the written agreement reflects the new terms.  —Draft a full and complete contract.

If you are a Nebraska small business owner, or a person in Nebraska creating a start-up Company, contact Madathil Law Office for a free consultation regarding what kind of entity you should form, and for guidance on many legal issues you will face. 

Angela Y. Madathil

Madathil Law Office, LLC

Employment and Business Law

Serving clients in Omaha and Lincoln

In Omaha                                         In Lincoln

1625 Farnam Street #830                  285 South 68th Street Place, Suite 322

Omaha, NE 68102                            Lincoln, NE 68510

angela@madathil-law.com

http://www.madathil-law.com/

T: 402.577.0686

F: 402.415.0635

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