In your app or website’s Terms of Service, you very likely have a provision to the effect of: “By using this app/website you agree to these Terms of Service”. You also likely have a link to the full terms of service, usually on your website or app’s homepage. Your app’s or website’s terms of service are effectively an agreement or contract between your company and your users. However, simply having a provision that mere use of the app/website constitutes acceptance of the terms of service is the least effective way of ensuring the enforceability of your terms. Courts have been extremely reluctant to enforce terms of service, especially against consumers, that provide for acceptance by mere use of the app or website — the theory being that average individual users very rarely are aware of terms of service or their provisions unless prompted to view the terms, and one cannot agree to a contract if one is not aware of the terms. Instead, courts have preferred to enforce terms of service where the the user has to affirmatively agree to the terms of service before being allowed to use the service. The best way to demonstrate that a user has affirmatively agreed to terms of service is to bring users to a page where they can (or must) scroll through (and presumably read) the terms of service before checking a box or clicking a button that says “I Agree”. If you have terms of service for your app or website (and you should!), you should ideally program your app or site to prompt users upon creating an account to use the service, or upon entering the site if accounts are not used/required, to view the terms of service and to indicate their affirmative assent to the terms by clicking a box or button that says “I Agree”. It may seem like pestering or inconveniencing the user, but it is necessary to establish the enforceability of your terms and protect your company.
I’ve previously described the trouble some companies have gotten in when they utilized social media presences for their companies that were created by employees off-the-clock, by freelancers, or even by persons unconnected to the company (later acquired or endorsed by the company). When the company attempts to take control over the account and kick out its creator (or vice-versa), the dispute usually ends up in litigation over who controls the account. Although companies usually come out victorious (especially where the account was supported by the company, maintained on company time, and uses the company’s copyrights and trademarks), to have to fight for control over a social media presence is a battle most startups likely do not have the time or resources for. Of course, there are steps any startup founders looking to start a social media presence should follow, especially if employees and/or contractors will be responsible for account creation and maintenance. – Make sure that accounts are created at the company’s direction and expense; try to avoid piggybacking on a fan-generated presence or accounts that employees created in their free time – Draft employee or contractor agreements to clearly state that company social media accounts (and any content generated for the accounts) are the property of the company, including ensuring that any intellectual property is legally “authored” by the company or is otherwise assigned to the company – Put social media policies in place, not just for employees who will administer accounts, but for all employees, so that any company-related social media is created at the company’s direction, and avoids disclosure of trade secrets, confidential information, or other disclosures that may trigger regulatory violations (such as an accidental general solicitation in the course of a company’s equity funding efforts). Of course, be careful with social media policies not to restrict any protected speech, such as collective speech protected under labor laws. – Practically speaking, give multiple employees access to the account so that control can be easily transferred in the event of a departure. If a site’s functions allow it, try to set up administrator functions so that you, as the founder(s), cannot be restricted or locked out by employees.
Sometimes, entrepreneurs have to close down their company. Of course, it’s not really apparent how this is accomplished from a legal perspective — that is, how to formally close the corporation or LLC. Legally closing down a business occurs in three phases: 1) the company dissolves; 2) the company winds up its affairs; 3) the existence of the company comes to an end. In the first step, the company is dissolved according to either the procedure in the company’s governing documents (i.e.: articles of organization, bylaws, operating agreement), if such documents and/or procedures exist; if not, according to statute. Dissolution is usually accomplished by a vote of the company’s owners, by a sale of all of the company’s equity or all or substantially all of its assets, or by judicial decree. It is important to note that dissolution does not end the company’s existence — there is much more work that must be accomplished before the company comes to an end. Once the company is dissolved, its affairs must be wound up. This includes satisfying all its current liabilities (paying outstanding debts, bills, salaries/wages, leases, etc), as well as, at the option of the owners, setting aside funds in reserve to pay contingent liabilities. This may be important if, for example, your business makes consumer products — if after the company closes a customer has a products liability claim, they may be able to proceed directly against the owners, but having a reserve fund for contingent liabilities allows those claims to be paid from other than the owners’ personal funds. Other winding up activities including collecting accounts receivable, selling assets, and, perhaps most important, filing final tax returns — this is something that some owners forget to do! Paying outstanding taxes is also important for the next step of winding up the company: canceling business licenses, permits, and filing articles of dissolution if the company is organized as a corporation or LLC. Some states require a tax clearance from the state revenue agency, which certifies that all of the company’s taxes have been paid. You can also contact the IRS to close the account associated with your company’s EIN — an EIN cannot be canceled, nor can it normally be transferred to or used by another company. Some states also require notice of dissolution be published in newspapers or journals to give the public notice of the company’s closing (so that anyone with claims against the company can bring them forward). Once outstanding liabilities and taxes have been paid, contingent liabilities funded by reserve (if desires), and the company’s assets liquidated, the residue of the company’s liquid assets can be distributed to the owners in the manner prescribed by its governing documents, or in lieu of that, state law. When all that is accomplished, the existence of your business can come to an end. (Note: you should retain the assistance of an attorney and accounting/tax counsel when closing down your business, to ensure that the process is done properly. The above involves a voluntary closing down of a business — if your business is insolvent or bankrupt, the process is more complicated, and you should consult with a bankruptcy attorney in that case.
If you’re leaving your 9-to-5 job to launch your own startup, and especially if you’re in the white-collar or tech sectors and your startup is in the same industry or uses similar technology as your current job, you will likely need to worry about employment agreements you may have signed that include restrictive covenants. Such covenants include invention/IP assignments, NDAs, and non-compete agreements. If you’re bound by agreements such as these, you may be prevented from starting your company for a period of time after leaving your job, or even prevented from starting your company altogether. If you’ve signed an invention or IP assignment, you must be careful when beginning to work on your startup while at your current job. Such agreements state that any intellectual property you develop during working hours, while on company property, and/or while using company resources is automatically assigned to the company you are currently working for. Depending on how broadly those categories are construed, intellectual property you’ve developed for your startup while working in your current job might actually belong to your employer, which could prohibit you from starting your company altogether. Similarly, post-employment restrictive covenants such as NDAs and non-competes can delay or restrict your ability to start your new company. NDAs can prohibit you from taking any IP or know-how from your current employer to your new company, so make sure that you aren’t taking any algorithms, software, manuals, etc. from your current employer with you to start your new company, even if they would be supremely helpful. Non-competes can delay you from starting your venture. First, make sure that your employment agreement doesn’t prohibit you from “moonlighting” — if it does, working on getting your new company ready to start may constitute moonlighting and would be a violation of your agreement. When you do leave, you may be prohibited by a non-compete agreement from starting your company if it competes with your current employer, by being in the same or similar industries. Of course, non-competes must be limited according to positional and industry scope, geography, and time — non-competes that are too broad are either invalid or must be reformed by a court to be more limited. Assuming that you are bound by an applicable, valid non-compete, you may likely be unable to launch your company for the duration of the non-compete. Also worth noting is whether your non-compete has non-solicitation and no-hire provisions; the former prohibits the solicitation or retaining of the company’s clients, while the latter prohibits the hiring of the company’s employees. Finally, as a piece of career advice, it is always preferable to ensure that you are leaving your job on good terms, both from a legal and professional standpoint. Not only is it best to leave with your company’s blessing and understanding that you are not violating any of their legal rights, but you should also make sure that you burn no bridges on your way out as well. Your former supervisors and colleagues can be an important resource for advice, feedback, and mentorship; scorning them can turn them into your new company’s biggest enemies.