So my friend and I are developing software for a client and she is offering equity in the sale and monthly revenue that the software and resulting service will deliver. Does this agreement sound fine? Everything seems to be going well and we trust our client but we’re just not sure.
This agreement is between Name1 (client), Name2 (me), Name3 (my friend), with regard to a revenue-sharing relationship in Comapany Name, LLC, a company founded and owned by Name1.
For as long as Name2 and Name3 are actively participating in and contributing to the growth and development of Company Name, LLC, they will each receive 25 (twenty-five) percent of net revenue from subscriptions, user fees, advertising or sale of the business.
I’m not a lawyer, but that phrase is too vague and open to interpretation for my liking. All they have to do is say “You’re no longer contributing to the growth and development of the company” and you’re done. You can take them to court to argue about it, but that will likely cost you more than you’re making from the contract.
That is the line that concerns us. I am just not sure how to bring it up as we are really friendly with the client and I do not want to insinuate any mistrust. Any tips?
I am not a lawyer type, but I would say this is an epic fail. The immediate problem that I see is that there is no consideration mentioned in the contract. In general a contract that says I will do X isn’t enforceable. You must get something for doing X for the contract to be valid. In other words, it has to be in exchange for Y dollars I will do X.
If you want an enforceable contract you need to get a real life lawyer. What you have and all you will generate is an amateurish agreement that will likely not stand up in court if push comes to shove.
Are you getting any money up front? If not, they could just fire you after you deliver the software and keep everything for themselves. Also, you’re getting 50% of the net revenue, so you get nothing unless the product is profitable.
Again, I’m not a lawyer, but the contract should state who owns the software and should be more specific about how and when you get paid. The contract as currently written allows them to never pay you a penny even if the software is profitable - it doesn’t say when they have to pay you your share. It doesn’t say that you can audit their books, so how will you know how much the software made in the first place?
As to the issue of trust, nobody should be offended if you say “We want to spell out the details in the contract”. It’s business.
We were going to sign the agreement and bring it next Monday but we just had a quick question:
Can we spell out the terms of the agreement in more detail-especially this line:
“for as long as Name1 and Name2 are actively participating in and contributing to the growth and development of Company name”
Our concerns stem from being very excited about developing a solid platform for us all to build on. We see the percentage you offered as very generous and want to make sure it accounts for our need for long-term involvement.
I hope you don’t mind, but this is really a big deal/exciting for us
If you’ve e-mailed this already, I’m not sure my comments will amount to much, but I’ll try anyway. I’d suggest being a little more direct in the above message to the other party–in particular, your paragraph above seems to be dancing around the issue using corporate/marketing buzzspeak when it seems to me that you’d make your point better if you were a little clearer. For example:
Our concerns stem from the fact that we want the agreement to spell out for all of us, Name1, Name2, and Name3, exactly what the rights and obligations of each of us are. In other words, we believe the agreement should clearly state what we will do for you and what you will do for us, in return. This will allow all of us to better plan our time and our budgets for this, and other, projects.
I’ll add another vote for seeing a lawyer who can attend to your best interests in this matter. I know my way around contract law well enough, but I am reluctant to comment on the agreement in your OP, for obvious reasons: I am not your lawyer, you are not my client, and legal advice should not be given on a message board. For competent legal advice specific to this matter, I urge you to consult a lawyer licensed to practice in your jurisdiction.
Software development arrangements can recite “milestones” – delivery of workflow plan, alpha, beta, website go-live date. Or you could tie it to “as long as X and Y are spending Z hours per week refining the code, they will get $N.”
