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(Click for updated PDF version: Legal Guide: Computer Services Agreement)

by: Peter Cusimano, B.Sc., LL.B.

Who Should Read This

This article is intended for computer consulting and computer programming companies. In addition, anyone who retains the services of a computer consultant or computer programmer will also find this article of interest and can easily adapt the material to their perspective.

This article discusses how a written agreement can protect the consultant/programmer and thereby work for your business and potentially save you money, aggravation, disappointment, and business failure.

How Your Business is at Risk

Have you ever considered what would happen if the program you wrote failed to properly work resulting in your client unable to conduct business? Programs never work initially and require constant revisions to work out the bugs. Often clients cannot understand the difficulty in finding and fixing bugs in a computer system. What happens if a virus infects your client’s computer system? If you do not adequately protect yourself, you may not get paid for your services. Even worse, you could be sued and held liable to pay for your client’s damages which could include more than just the price of your services. You could easily find yourself defending a lawsuit for thousands or millions of dollars for loss of profits and loss of contracts of your client if they are unable to conduct business as they anticipated while the computer system is down.

On the other hand, when the program is functional and of good quality, the ownership of the software often becomes a contentious issue between the parties. For example, does the customer own the source-code or do you own it? Are you required to give the source code to your client? Similarly, are you permitted to create a similar software product for your client’s competitors? You may find that your client asks you to sign a confidentiality agreement. If you are not careful, you may be prevented from developing similar software on the basis that you are using confidential information. Alternatively, you may find yourself unable to sub-contract your work to others because of the confidentiality requirement. As a result, you may find yourself being sued for breach of confidentiality or an injunction may be issued against your company.

Where you retain the rights to the source code you can include a provision that prevents your customer from profiting from the software by reverse engineering the software and selling it to third parties. Alternatively, you may wish to have the ability to licence your software to anyone interested.

The results of any of the above scenarios could be devastating to your company and can easily cost you tens of thousands of dollars in legal fees to rectify. However, your company’s exposure to liability can be limited in advance by the use of a written computer development/consulting agreement.

How to Protect Your Consulting/Programming Business

You should hope for the best, but plan for the worst scenarios to occur. If you are in the consulting or programming business, a computer development/consulting agreement should be prepared and signed by you and your client prior to the commencement of any work to limit your liability and help protect your business. The use of a written agreement can save you money, time, aggravation, and most importantly your business.

Your agreement will also help reduce the chance of a disagreement by outlining the roles of the respective parties. Your client will be required to prepare or approve the project specifications and the obligations of both your company and the customer will be clearly described.

In addition, your agreement can be used to ensure that your fees are easier to collect. Often clients refuse to pay for a project until every bug is worked out or they may be disappointed with finished product and continually demand changes. To protect your business, a payment structure will be inserted in the agreement requiring payments to be made as project milestones are attained. In the event that your client does not make a payment, a clause can be included allowing you to terminate the agreement and thereby ending your obligations to continue doing work and spending money on a client you anticipate will not be paying for your work. The agreement will also deal with preliminary work and any disbursements (out-of-pocket expenses) that are not included in your fee and which are to be paid for by the customer.

Although some people believe that asking their customers to sign a written agreement will spoil the relationship, smart business people know that a written agreement helps to protect their business and all parties will feel more comfortable knowing that their respective duties, obligations, rights, and benefits are in writing. The agreement will be tailored to the specific requirements of your business and will be written in plain English.

What Your Agreement Should Include

A good development/consulting agreement should address the following:

the agreement should accurately reflect the agreement between you and your customer
the agreement should clearly describe the project specifications so as to address the solutions to your customer’s needs and wishes;
payments should be tied to the passing of performance tests and to project milestones being attained;
after-support should be provided for in the agreement. Often changes are required by the customer as a result of the client’s changing needs or wishes;
ownership of the work often becomes a source of dispute if not dealt with early on.
You should discuss your options with your lawyer. By having the appropriate agreement in place you can protect your business and improve your business relationship with your customers who will appreciate your thoroughness and attention to details. Among other provisions, your agreement will contain provisions addressing these issues:

• Date of agreement
• Parties to the agreement
• Definitions to clarify terms
• Recitals including purpose and background information
• Retainer of services
• Term of the agreement
• Services to be provided (project specifications; time requirements; person doing work)
• Obligations of client
• Follow up services (training, support, documentation)
• Remuneration of services (method of payment, performance tests and milestones)
• Discretionary bonus
• Expenses (disbursements)
• Covenants and representations by both parties
• Ownership of work (copyright, patents, inventions)
• Limitation of liability
• Confidentiality and non-competition
• Licencing
• Termination
• Capacity as independent contractor or employee
• Dispute resolution (arbitration)
• General contract provisions
• Relevant schedules (project specifications)

Additional Agreements with Your Employees

In order to protect your business an employee agreement with your employees will be useful. You will want this agreement with your own employees and especially your software programmers. The agreement will provide that your company and not the employee owns the copyright to the software. Also, the agreement will provide that your employee will keep all information concerning your business and your customers confidential. Nothing could be worse than your employees going to your competition and disclosing secrets about your business or worse, your customer’s business. Your reputation could be ruined if customer secrets are disclosed.

How the Law Office of Peter Cusimano Can Help You and Your Business Today

I will meet with you and will prepare the necessary written agreement. I will ensure that the agreement contains whatever is required to satisfy any of your specific wishes and to protect your business. You will find that our agreements are complete, and understandable. Complete and clearer agreements are harder rather than easier to do. If something is not clear to you, I will explain it to you.

If your company is about to retain a computer consultant or computer programmer, I can also prepare the necessary agreement so that it adequately protects your interests.

Peter Cusimano practices business law in Toronto, Ontario.

Headnote: legal agreements, employment agreement, non-competition, non-solicitation, contracts, Ontario

by: Peter Cusimano, B.Sc., LL.B.

Who Should Read This

This article is intended for real estate agents, insurance agents, architects, engineers, advertising agencies, accountants, dentists, computer software companies, manufacturers, and any business that is at risk from former employees stealing clients, competing with you, or disclosing trade-secrets or confidential business information to others. This article discusses how a written employment agreement can work for your business and potentially save you money, aggravation, disappointment, and business failure.

Is Your Business at Risk ?

If you have no written employment contract with your employees but rather maintain an oral employment relationship or in other words an employment relationship based only on a handshake then your business is at great risk. If your business is dependent on a loyal customer base and if you do not adequately protect yourself, your former employees may begin soliciting your hard-earned customers, may open a competing business across the street from you, or may copy your customer list, your trade-secrets and techniques. Unless you have a written employment contract in place that deals with these concerns it will be very difficult and very expensive to stop the other party or obtain legal relief from them no matter how “right” you think you are and no matter how much you think the other party is a “thief”.

Who Can Steal From You

Anyone in your business who has access to information about your business can “steal” company information from you. Not only does this include those who created the information but also includes those who may have access to the information including your employees, secretaries, cleaning staff, students, outside consultants, and former employees. If your business uses computers, your entire company including customer lists and information, inventory lists, financial reports, supplier lists and whatever else may be on your computers can be copied to a diskette and “stolen” from you without you even knowing about it until it is too late.

How To Protect Your Business

If you are going to hire a new employee, a written employment agreement should be used to help protect your business. The use of non-competition, non-solicitation, and confidentiality clauses in employment agreements can save you money, time, aggravation, and most importantly your business. If you need to take legal action against a former employee, a written employment contract will greatly favour your position. Although some employers believe that asking an employee to sign a written employment agreement will spoil the relationship, smart employers know that a good employment agreement helps to protect their business and all parties will feel more comfortable knowing that their respective duties, obligations and benefits are in writing. The agreement will be tailored to the specific requirements of your business and will be written in plain English. Among other terms, the agreement will deal with the following:

• Term of employment
• Pay and any benefits such as vacation or health plan
• Duties of the employee
• Representations by the employee such as academic qualifications
• Termination of the employee for cause if certain events occur
• Termination of the employee without cause if certain events occur
• Confidentiality of information
• Non-competition during and after employment with your company
• Non-solicitation of your customers/clients and employees
• Ownership of any customer lists & records, copyrights, patents (if any)
• Office procedures and policies

If you have an existing employee that you now wish to be subject to a written employment contract with the above clauses, careful analysis by a lawyer of your particular situation is required before any advice can be provided.

How the Law Office of Peter Cusimano Can Help Your Business

I will meet with you and evaluate the needs of your business. I will prepare the necessary employment agreement and will ensure that the agreement contains whatever is required to help protect any specific interest of your business. You will find that my agreements are complete, and understandable. Complete and clearer agreements are harder rather than easier to do. If something is not clear to you, I will explain it to you.

Peter Cusimano practices business law in Toronto, Ontario.

by: Peter Cusimano, B.Sc., LL.B.

Who Should Read This

This article is intended for anyone who is a partner carrying on business under a partnership. A “partnership” exists when two or more persons (individuals or corporations) carry on business in common with a view to a profit. The Partnership Act contains provisions that governs the legal relationship of the partners to each other. These provisions can be varied by a partnership agreement signed by all the partners. This article discusses how a written partnership agreement can work for your particular business and potentially save you money, aggravation, disappointment, and failure of the partnership.

Why You are at Risk

Although most new partners believe that they were meant for each other and they’ll always get along, situations will almost always arise that the partners never contemplated. If there is no written partnership agreement with the other partners but instead your partners maintain only an oral partnership or in other words a partnership based only on a handshake then the Partnership Act will govern the relationship which may not be in accordance with the original intentions of the parties. For example, if there is no written partnership agreement outlining the circumstances whereby the partnership will come to an end, the Partnership Act provides that the partnership will automatically end upon the occurrence of any of the following events:

• on the expiration of the term fixed for its existence;
• at the completion/termination of the single adventure or undertaking for which it was created;
• upon any partner giving notice to the other partners of his/her intention to dissolve the partnership;
• upon the death or insolvency of any partner; or
• when ordered by a court to do so pursuant to certain circumstances under the Partnership Act.

As such, your partnership may be in jeopardy when disagreements or unexpected events occur which cannot be resolved. In the 1990’s your business requires co-operation of all partners in order to be successful and if you do not adequately protect yourself, your fellow partners may have a different philosophy than you with respect to the conducting of business. Alternatively, unforeseen events may occur that the partners cannot agree on how to resolve. Therefore, unless you have a written partnership agreement in place that deals with these concerns it may be very difficult and very expensive to resolve any disagreements or deal with an unexpected termination of the partnership.

How To Protect Yourself and Your Business

If you are conducting business in partnership with others a written agreement among the partners (called a “partnership agreement”) should be used to help protect you and your business. The use of a partnership agreement can save you money, time, aggravation, and most importantly your business. The result is a greater trust and harmony among partners which is fundamental to every successful business.

If there is a dispute or uncertainty on how to proceed in a particular situation, the partners can refer to the partnership agreement for guidance. In the event that the agreement does not cover the circumstance and the situation cannot be resolved by the partners, an arbitration clause can be inserted in the agreement that requires the dispute to be referred to an independent third party.

Although some partners believe that asking fellow partners to sign a written partnership agreement will spoil the relationship, smart business people know that a good partnership agreement helps to protect their business and all parties will feel more comfortable knowing that their respective duties, obligations and benefits are in writing. The agreement will be tailored to the specific requirements of your business and will be written in plain English.

What Your Partnership Agreement Should Include

Your partnership agreement should describe the duties and responsibilities of the partners, methods of making decisions, and dissolution of the partnership. In addition your partnership agreement will include the following provisions:

• Date of agreement
• The names of the partners and any other parties
• Definitions to clarify terms for easy understanding
• Partnership name
• Term of the partnership
• Place of business
• Description of the business
• Capital contributions required by the partners
• Method for division of profits
• Management of partnership and decision making procedures
• Signing authority for documents
• Banking arrangements and signing authority for cheques
• Ownership of partnership property
• Transfer of partnership interest
• Procedures for retirement, bankruptcy, incapacity, or death of a partner
• Non-competition
• Confidentiality
• Non-solicitation
• Procedure for admission of new partners
• Insurance
• Accounting and records of partnership
• Auditor or accountant of partnership
• Dissolution and distribution of assets
• Arbitration and dispute resolution
• General contract provisions
• Relevant schedules (if any)

How the Law Office of Peter Cusimano Can Help You and Your Business

I will meet with you and evaluate the needs of your business. I will prepare the necessary partnership agreement and will ensure that the agreement contains whatever is required to address any specific needs of your business and the partners. You will find that my agreements are complete, and understandable. Complete and clearer agreements are harder rather than easier to do. If something is not clear to you, I will explain it to you.

Peter Cusimano practices business law in Toronto, Ontario.

(Click for updated PDF version: Legal Guide: Shareholder Agreement)

by: Peter Cusimano, B.Sc., LL.B.

Who Should Read This

This article is intended for anyone who either:

• owns shares in a private corporation;
• is contemplating buying shares in a private corporation;
• in contemplating selling a portion of their shares in a private corporation;
• is starting a private corporation.

This article does not apply to public corporations, that is, corporations whose shares are traded publicly on a stock market.

This article will be of interest to shareholders of small private corporations and where often some shareholders also act as directors or officers of the corporation. In such a case, the co-operation of all the shareholders is crucial to the success of the business. Although the responsibility of making decisions for a corporation normally is with the directors of the corporation, a shareholder may wish that certain decision making powers be removed from the discretion of the directors and be given to all of the shareholders. This article discusses how a written shareholders’ agreement can protect your monetary investment and thereby work for your business and potentially save you money, aggravation, disappointment, and business failure.

How Shareholders are at Risk

Although most shareholders believe that they were meant for each other and they’ll always get along, situations will almost always arise that the shareholders never contemplated. For example, if the corporation requires additional capital there may be disagreement as to where the additional capital is to come from; or some shareholders may desire a first right of refusal if another shareholder desires to sell his/her shares to a third unknown party. If the shareholders get into a disagreement with each other and there is no written shareholders’ agreement it may be extremely difficult if not impossible to require another shareholder to sell his/her shares. It is possible and legal for shareholders to enjoy the profits of the corporation by way of dividends without having to do any work. As such, the success of your business may be in jeopardy when disagreements between the shareholders or unexpected events occur which cannot be resolved.

In the 1990’s your business requires co-operation of all shareholders in order to be successful and if you do not adequately protect yourself, you may discover that your fellow shareholders have a different philosophy than you with respect to the business. Alternatively, unforeseen events may occur that the shareholders cannot agree on how to resolve. Therefore, unless you have a written shareholders’ agreement in place that deals with these concerns it will be very difficult and very expensive to resolve any disagreements between shareholders. Each party thinks that he/she is right and the other party is wrong.

How to Protect Yourself (and Your Business)

You should hope for the best, but plan for the worst scenarios to occur. If you are conducting business using a corporation a written agreement among the shareholders (called a “shareholders’ agreement”) should be prepared and signed by all the shareholders to help protect your interest as a shareholder and thereby help ensure the success of your business. The Ontario Business Corporations Act permits shareholders’ to enter into a shareholders’ agreement and remove decision making powers from the directors. The use of a shareholders’ agreement can save you money, time, aggravation, and most importantly your business. The result is a greater trust and harmony among the shareholders which is fundamental to every successful small private corporation.

If there is a dispute or uncertainty on how to proceed in a particular situation, the shareholders can refer to the shareholders’ agreement for guidance. In the event that the agreement does not cover the circumstance and the situation cannot be resolved by the shareholders, an arbitration clause can be inserted in the agreement that requires the dispute to be referred to an independent third party.

Although some shareholders believe that asking fellow shareholders to sign a written shareholders’ agreement will spoil the relationship, smart business people know that a good shareholders’ agreement helps to protect their business and all shareholders will feel more comfortable knowing that their respective investment, duties & obligations as shareholders, rights, and benefits are in writing. The agreement will be tailored to the specific requirements of your business and will be written in plain English.

What Your Shareholders’ Agreement Should Include

Your shareholders’ agreement should describe the duties and responsibilities of the shareholders, methods of making shareholder decisions, and ownership of shares. In addition to any specific wishes of the shareholders, your shareholders’ agreement will also include provisions addressing the following issues:

• Date of the agreement
• The parties (shareholders and others)
• Definitions to clarify terms
• Recitals including purpose and background information
• Business and affairs of the corporation
• Control of the corporation; election of directors
• Signing authority
• Decision making procedures; where shareholder approval required
• Financing and additional capital contributions to the corporation
• Issuance of new shares
• Ownership of shares
• Transfer of shares: procedure, right of first refusal, conditional on signing agreement
• Retirement, divorce, bankruptcy, incompetency, or death of a shareholder
• Insurance
• Non-competition
• Confidentiality
• Non-solicitation
• Dispute resolution between shareholders (arbitration and “shot-gun” clauses)
• Legend to be printed on face of all share certificates
• General contract provisions
• Relevant schedules (if any)

How the Law Office of Peter Cusimano Can Help You and Your Business Today

Shareholders should enter into a shareholders’ agreement as soon as possible, especially when all the shareholders are harmonious. If you wait until a disagreement arises, it will likely be too late to get the disputing shareholders to agree. I will meet with you and will prepare the necessary shareholders’ agreement. I will ensure that the shareholders’ agreement contains whatever is required to satisfy any of your specific wishes. In order to protect the legal interests of the other shareholders, each shareholder should consult their own lawyer to review the shareholders’ agreement and to provide independent legal advice. You will find that my agreements are complete, and understandable. Complete and clearer agreements are harder rather than easier to do. If something is not clear to you, I will explain it to you.

Peter Cusimano practices business law in Toronto, Ontario.