Co-founder Memorandum of Understanding | Hacker News Reader

Co-founder Memorandum of Understanding

msabundle.com

13 pointsobiefernandez18 comments

Hi everyone. I've been successfully selling my document templates for the last two years. This is the first one that I think might be of real interest to the HN crowd. The original version came about because I was the founder of a startup and was bringing on an acquaintance as CTO whom I didn't fully know. And frankly, we didn't fully trust each other, so we wanted to find a way to protect our interests if things didn't go exactly as planned.

The result was this agreement, which although titled Memorandum of Understanding (aka Letter of Intent) forms a legally-binding contract upon execution. It helps to prevent co-founders from "screwing each other" over by stating exactly what will happen prior to the legal formation of the new venture. In fact, that saved me a lot of grief. My prospective new partner and CTO did not work out. She quit right before we incorporated and opted to take a payout as a contractor. This was stipulated clearly in the agreement, so we were able to wrap things up cleanly without bitterness and maintaining protection for my valuable IP.

I think it's a very good idea to have something like this in place before you start pouring your soul into a project. That said, I would recommend that any potential co-founders go and consult a lawyer instead of purchasing a template, since your particular situation may differ and a template might not cover all the bases or hold up in court.

You should definitely talk to a lawyer, but it's worthwhile going to them _with a draft document already in place_ -- especially if you are starting with one that has been proven for its purpose. Otherwise you may end up paying them to whip one up from scratch that won't be as good. It will cost you much more than the template, trust me.

I have paid a lawyer to create a document from scratch that ended up worse than what I found for free online. So I highly recommend obiefernandez's approach of meeting your lawyer with a template in hand as a starting point.

I had to look more at the site to understand the context so here's my summary if it helps anyone. msabundle.com is the website of the poster and has 3 legal agreements. Obie says that he's a professional software developer and has written bestselling books on RoR.

I'm unfamiliar with Obie but would be cautious about buying legal documents from a non-lawyer. It's not clear who drew up these contracts or what jurisdiction they would apply to. $79 for a good MoU is potentially very good value so this could be great, but there's not enough info here for me.

Hi, I'm the poster. The idea is not to replace your lawyer, but to save you money by giving you a draft agreement to take to your lawyer for review, feedback and ultimate approval. This approach will definitely save you money and hassles since most lawyers are expensive, and many of them don't have specific experience with software business topics.

Hi Obie,

I can certainly see where this might be very useful, but it should be clear where the limitations are. Having a good legal document can make a huge difference.

Yeah, this is on the front page with 10 clicks?

There is no preview, no reviews, and no backstory?

Seems spammy as heck to me.

A similar template (although free) by Seedcamp & Brown Rudnick, mostly for covering IP rights and equity distribution + vesting: http://www.seedcamp.com/2011/09/seedhack-founders-collaborat...

Direct PDF link: http://www.seedcamp.com/main/wp-content/uploads/2011/09/Seed...

Looks great, certainly some points in there that anyone thinking of a startup should go over.

"contains non-binding language that allows you to specify how equity split in the new venture is planned"

If it's non-binding, what's the point?

The details of the equity split are the only parts of this agreement that are non-binding, because they are complex and will usually be couched in boilerplate language as part of the incorporation process. Still, I think it is better to put this information in writing even if it's non-binding because it helps to prevent misunderstandings in the future.

Interesting, I would have never thought to do this.

I hope you are not based in the U.S., because if you are, you are committing the unauthorized practice of law and face unlimited liability for malpractice arising from anyone's use of these documents.

Also, in many states, the unauthorized practice of law is a crime. A misdemeanor or regulatory offense in most states, but a felony in some. In many states, the authorities are empowered to seek all incomes from the activities deemed to be such practice of law.

EDIT: Obie appears to be based in Atlanta Georgia, so the above is applicable.

I regret to inform you (Obie) that unless you immediately stop referring to these documents as legally binding (i.e., on HN and at your Shopify store), I am ethically mandated to report you to the Georgia Bar Association (and the California Bar Association) for the unauthorized practice of law. You may refer to these documents as "samples" or "research materials for use with conferring with a lawyer" but you may not describe these documents as legally valid/binding/appropriate documents.

Followup: to see examples of how this can be done, check out the Nolo line of books, especially the sample forms in the appendices. (Hint: use the word "sample" unsparingly.)

Hey since you seem to know some more about this than I do, can we have an email conversation about it before you take any action? I certainly don't want to be breaking the law in any way and am happy to make changes to bring my product into compliance. I have many people that have been very happy to use these templates in the way that I've described -- I'm just trying to provide a valuable service to other hackers, this is not a huge money maker for me.

As I said: you must call them "samples". It is a good idea to have "Sample" as the first word in the title of these forms, i.e., "Sample Memorandum of Understanding."

You must also stop saying that they are legally binding and valid. (They are, but...) The problem is that you are saying that these documents are legally appropriate for the purchaser, i.e., that they can rely on these documents for legal effect, regardless of the circumstances. You can't say that unless you know for certain that is the case for the specific facts and circumstances of the purchaser. This application of judgment is considered the practice of law, and this is what will get you in trouble. (It is okay to continue saying that you use them, since you are not saying whether someone else should use them.)

Nolo and LegalZoom get around the practice of law restrictions by expressly stating that their documents are only samples and are not intended to be relied upon without review by a lawyer. (Indeed, most of LegalZoom's $100 documents are merely samples released by the various secretaries of state with Legalzoom's logo added.) Luckily, they have both fought enough court cases to establish that it is no longer necessary to plaster "This is not a legally valid document." on every page. It's still a good idea to do that, but courts recognize that clearly labeling something a "sample" is sufficient protection (for you).

A possible pivot: Change what you're selling. Partner with a few local lawyers, and offer the documents as part of a package: buy the doc, get an hour included with a lawyer to review it to make sure it is satisfies the purchaser's needs. You would generally need a lawyer in every state in which you wish to do this, so I would limit it to Georgia and/or California. Depending on what sort of referral fee you work out with the lawyer(s), you could drop the price on the documents and more than recoup it from the referral fees.

Hey rprasad, big thanks for the super quick reply. I am already made some sweeping changes to the copy on the site based on your feedback. Also will be having my own attorney review the site this week.

I am very familiar with NOLO's products and in fact I have some of them myself. If you go to (for instance) their collection of contractor agreement samples here: http://www.nolo.com/companion/consultant-and-independent-con... you'll notice that they are not overtly plastered with SAMPLE notices or disclaimers, but their book does clearly state that you need to review this stuff with your own attorney to get their advice. I believe that now, especially with the latest copy changes I am abiding by the spirit of your advice. Please realize that I am not trying to do anything wrong or sneaky.

BTW thanks! I like the idea partnering with lawyers to provide a packaged service (although that is probably way too ambitious for what is a very small side project for me.)

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