Taking on a Partner/Salesperon

[Razumovsky]

First, this category has been really enlightening in helping me conceptualize all the nuances of the business side of development. Many many thanks to everyone

[LiveOak]

Lots of considerations, many of them legal. The first non-legal consderation is that you never know a persons true character until the money hits the table. The very nicest seeming of people turn from Dr. Jekell to Mr. Hyde when money is at issue. Also:

1) Who owns the product? Did you have a contract during the development specifying who owns the rights to the work product? This is a major question. If you worked as an independent contractor and didn't have a contract, you are already in trouble. In this case you own the software, you client has the right to use the software, but not sell or create derivative works. You also have unlimited libility for damage to his business caused by errors in your software. If the work was performed by your corporation, you are in better shape, liability wise, but ownership issues will persist.

2) How will you organize this new business? If you are seen to legally have formed a defacto partnership with this person (Does SF mean San Francisco, USA?), you are liable for anything his business does. If you are not a corporation or limited partnership, your personal liability is unlimited. The house, car, toys, everything is on the line for any action his business takes. If he were just selling the product and had not paid for all/part of the development, you could just sell it to him for resale or use him as a commissioned salesman, but this is not the case. You might investigate forming a corporation or LLC to hold the rights to the software and specify ownership.

At this point the issues are complex enough to require a business/intellectual property right attorney to advise you on how to set up a business relationship. This is on top of deciding what make sense for the two parties. If ownership isn't spelled out in an existing contract, this can all turn really ugly if it looks like there is reasonable profit to be made on the product.

Sorry for all the cautions, but I've see the negative side occur more often than the positive.

-bd

(Nothing in the above should be considered legal advise. Your position in this matter should be reviewed with an atttorney.)

[Razumovsky]

Not quite the "yeah, go for it!" I was looking for.

You raise some very good issues that I need to tackle before getting to the profit sharing question. Because most of the work I did previously was for one company where the resulting product was so specific to their operation, and because of the strong personal ties I had with the owners, these issues had not really come up (I was essentially an employee there). Now that I have been branching out on my own, it is probably high time to confront some of these beasts.

1). Thanks to reading many of the other posts in this section, my intitial conversations with all prospective clients include a direct and clear statement that the resulting database will be my work which will be licensed to their business for use indefinitely (but I will retain the rights). I also include this in my email "contract" where I spell out the basic functions of the proposed database that we had agreed on, plus my rate based on an estimation of the amount of work required. I also include a statement like "this product is licensed exclusively for use by X company. In the event you would like to obtain a copy for your own business, please contact [email protected]" on the main menu page." I do not have a signed contract though - we have never met and do everything over email/phone. I am thinking now that it would be worth the .37$ to mail him a hard copy to sign as well. I am not incorporated in any way yet - is definitely something I need to do more research on. "You also have unlimited libility for damage to his business caused by errors in your software. " I also would like to find out if there is anyway to limit my liability in general from this (other than diligently quadruple checking my program).

2). (Yes, SF meant San Francisco, and now means...er...New York, NY. I will update my profile) "If he were just selling the product and had not paid for all/part of the development, you could just sell it to him for resale or use him as a commissioned salesman, but this is not the case. " If I do indeed own the product, why would this matter? Just curious- I suppose I was thinking of this type of situation as the path of least resistance.

I do plan on consulting an attorney, but would like to get a handle on all the issues I need to cover with them beforehand. I have had bad experiences before in having lawyers advise me to do things that were unneccesary (even damaging to me) but would result in more work for them. Your response has been very helpful in framing some questions to pose. Even if the positve side happened more often than the negative, I would imagine that even once would be too many.

Thanks as always.

(Nothing in the above post was considered legal advise. My position in this matter will be reviewed with an atttorney.)

[Kurt Knippel]

Speak to a lawyer.

A couple of options that could work is to simply split the work. He sells the software and takes all payment for it, you do the customizations and take all the payment for that. If you hold ownership of the software, then he could be paid a referral fee or commission for the software, and you take all other payment for it. I he owns the software, he could pay you as a sub-contractor or employee for all of the customization work.

[LiveOak]

There are a couple of ways to limit your liability. One is to incorporate or to create a Limited Liability Company. The other is to have a signed contract that exempts you from incidental and consequencial damages that result from the work you do.

-bd

[jasonwood]

There are a couple of ways to limit your liability. One is to incorporate or to create a Limited Liability Company. The other is to have a signed contract that exempts you from incidental and consequencial damages that result from the work you do.

The difference though is significant. To incorporate means your liability is limited to the assets of the company. I wouldn't bother incorporating just for liability reasons because if you ever need a loan, they'll probably make you sign away personal assets anyways if there is any risk in the deal, which defeats the whole purpose of incorporating!

To put it in the contract is to limit the liability to the degree you specify... much more effective.

I am not a lawyer. I accept no responsibility for this advice.

[SteveB]

There is a difference between a corporation and an LLC. An LLC has a definite life. There are also tax advantages to being a corporation, especially an 'S' corporation, which for tax purposes is treated like a sole propriatorship.

The first thing I would do is form an 'S' corp, which means incorporating and then filing your tax status with the IRS.

Check the www.nolo.com site for books about legal things as a start. In most states incorporation is easy and you don't need a lawyer...just fill out forms and pay a fee. However, a partnership agreement is another matter, and for that you do need legal advise.