The start-up nation has generated a wealth of great business ideas that have helped power such applications as Fiverr, Wix, and Waze, as well as game-changing tech like MobileEye. But as we pointed out a couple of weeks ago in the first part of this set of two articles, success is never automatic, and businesses need to be savvy about legal risks both the in the United States and in Israel and indeed beyond.
To help businesses cope with those legal risks, here’s the second part of a list (based on my own experience after a couple of decades in the business of law and now the principal of my own law firm) of the top 10 most common US business problems, and a list of law hacks to try to mitigate those legal risks. Obviously, this is by no means a substitute for legal advice that’s tailored to you, whether from a top traditional law firm like Wilmer-Hale or a lower cost solution like RocketLawyer or Inside Outside Counsel. But these law hacks will help you plan smarter and stay ahead of the game when do you seek legal solutions from your chosen attorneys.
Learning the Hacks of Business Law Can Help the Davids Handle the Goliaths in the Business World (image commercially licensed by author)
1. The Problem: Limiting Your Business Liability When Things Go Wrong
We always want everything to go right. And it’s painful to think about the worst-case “what if” scenarios when things go wrong with the company you’re doing business with or servicing. But doing so can mean the difference between a world of headache and a huge financial burden and a manageable financial burden.
The secret is to limit liability. There are a few law hacks to do this. The first hack is a limited liability clause that limits liability to amounts paid to the other side over the course of – for example – the past six months.
The second law hack is to provide a reasonable liquidated damage clause providing for a fixed amount of money to be paid in situations where monetary damages can be hard to estimate.
Obviously, if you’re the one with a lot at stake and are worried about damage from the other side, there may be situations in which you’ll want to not limit liability and set high liquidated damages.
Which option you choose will depend on your particular circumstances.
2. The Problem: Leveling the Playing Field When You Don’t Have a Large Litigation Budget
There’s a big difference between having a good case against a company that has done you damage and actually being able to successfully press that case. That’s because it costs a lot to litigate – to bring suit against the other side, even if you’re in the right.
There are two good law hacks to provide for this eventuality. One is an indemnification clause: If the other side causes damage through a breach of the terms of your agreement, the other side has to indemnify you and hold you harmless from all the costs associated with their breach – including attorneys’ fees.
The second law hack is what is called the “British Rule” regarding attorneys’ fees. The British Rule provides that whoever wins a lawsuit pays the other side’s legal fees. With such a clause in place, it’s easier to find a law firm that’s willing to represent you, knowing that if you have a good case, you may be able to win their attorneys’ fees as well as your own damage award.
3. The Problem: Complying with Complex Regulations and Rules You Know Nothing About
In many areas of commerce and industry as well as services, there are complex laws, regulations, and rules that often govern, and if you’re stepping into that space in a relationship with a company in that area, you may not be aware of all those laws, regs, and rules.
To lessen the chance that you’ll find yourself falling afoul of a government agency, it’s a good idea to put in a simple law hack: a legal and regulatory compliance clause. This will put responsibility on the party to the agreement to know what can be expected, and to know what to watch out for when it comes to laws, regulations, and rules with which you need to comply.
4. The Problem: Terms and Conditions of Use and Privacy Policies
If you run a website, provide services via the internet, or have created an app of any kind, or if you do business with a company that does, it’s good to be aware of this law hack: Writing terms and conditions of use that benefit (or may not benefit) you. The law is – within certain reasonable limits – that whatever is written in the terms and conditions of use is what will govern your relationship – if you click on that little box that says “I agree.” In general, courts in the United States have been pretty reluctant to interfere if you clicked that “I agree” box, except in the most egregious of cases. So if you’re a company that needs a TOC, you should draft it well. And if you’re a company with an important relationship based on a TOC, you’d better read that carefully.
5. The Problem: High Legal Fees for a Complex Agreement Before You Need One
Many businesses consider an ongoing relationship with a potential business partner but there are a lot of conditions precedent that need to be met before the deal really is ready to go through. For that situation, there’s a good law hack to save a lot of legal fees for as-yet unnecessary legal agreements and leave the door open for that future business deal: a memorandum of understanding – MOU – or term sheet. An MOU or term sheet can set forth – in a couple of pages – the broad outlines of a future agreement and set forth the conditions precedent that need to happen before entering into that agreement. This lends an air of seriousness to the deal while allowing a clear option to back out if things don’t pan out as planned. And an MOU or a term sheet costs a lot less in legal fees than a full-fledged lawyerly agreement with all the boilerplate terms.
With these simple law hacks that address the 10 most common problems faced by businesses, your business can work savvier and save money too.