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Name a social impact business!

Links from this article:
Etsy IPO
Patagonia
Ben and Jerry

I recently chatted with some folks at LinkedIn and their messaging around business vision really stuck with me:

Create economic opportunity for every member of the global workforce.

This is a vision that’s both impactful and inspirational. This got me thinking about the inspirational power of social impact businesses.

They are wonderful, profitable and sustainable. Sounds great, right? But…can you name just five?

Umm. Lyft? Arguably, no. It’s just a driver-friendly Uber. Red Cross? No. That’s a charity. Umm Toms?? Buy one – give one to someone in need! Err – maybe, there’s some controversy around the displacement of local shoe markets, but Toms now has other giving options. Umm… American Apparel? I’m digging deep here. (I met Dov Goldberg in my impressionable years and so this one was just a throwback.) Okay, frankly none of these businesses were even top of mind for me as a social impact business. Oh, Etsy!? As we all remember, Etsy IPO’d with a prospectus declaring their value of community benefit over profit.

So what if they are hard to name?

People in the social impact business know who and what these businesses are.

My social impact colleagues are quick to point out that Patagonia and Ben and Jerry’s are B-Corps and are social impact businesses, as well as a number of others. With decades of work productivity behind me, it’s definitely sexy to think about solving “meaningful” problems: social and real-world problems, rather than purely commercial problems. And of course, there are lot of other social and societal issues that our team members and employees at large care about.

Purpose over Profit is Sexy.

But that won’t necessarily pay the bills.  So…how do you transition your business from profit-oriented to social/community/purpose drive?  Here are some ideas:

  • Share in the “upside”.   Various mechanisms exist for this, and much guidance can be found by existing models.  Some shares of a business can be held in a personal or family trust with rules around community-based or purpose-based investing.  Organizations like Upside Foundation have created a pledge for businesses to transfer 1% of their equity to charity.
  • Focus on core values that are purpose-driven. Changing the DNA of a business to be purpose-driven is equally, if not more, important than a small equity pledge. Shared core values will help shape the business in its recruiting, culture and overall vision.  By way of example – at my beloved Clausehound.com – for us it’s simple: the law is complicated and therefore requires unique expertise, however, we believe in reducing power imbalances by creating affordable access to legal answers. Providing substantive value in every customer interaction (to keep customer costs to a minimum), and sharing learning materials with customers “up front” are two lawyer paradigm shifts that have resulted from this goal, and also forces us to stay lean. (I should share that figuring out a sustainable business model that is not derived from high billable rates is not easy.)
  • Pledging employee time towards social initiatives.  I had written about the idea of putting 5% of employee time towards social initiatives in a previous post, but even 1% would create significant impact.
  • Formally change the business structure to be purpose over profit.
     The natural purpose of a business (for which the board of directors has a fiduciary duty to fulfil) is to maximize profit.  Converting a business to a certified B-Corp flips these requirements by making the main purpose of the business to create a socially beneficial impact.

Don’t forget about the advertising

Of all the positive change created by social impact business, mainstream awareness appears to be one of the most difficult to achieve.

Branding and integration of social impact businesses into mainstream behaviour/activities proves to be an area of improvement for social impact businesses. Toms does a pretty good job of creating visibility – ‘buy one to give one’ gets consumers involved. There are a lot of great and missed opportunities to build awareness though. Solar-powered social impact businesses have brought mobile phone commerce to and changed lives in many parts of the world. Integration of a solar-mobile phone icon inside of my G-chat or Facebook messenger contact list would be an example of such businesses building some cool awareness. Pedometers track footsteps, and that’s pretty mainstream. But integration with a carbon offset calculator such as myclimate.org could possibly catalyze positive change. Certified B-corps get a sticker (among many other points of pride) but add a domain (eg BenandJerry’s.b or BenandJerrys.si (“social impact”) for immediate brand recognition, or (hypothetically) from a brand powerhouse like a SpaceX.si would create a branding impact (“si” is already taken by the way, by Slovenia).

We (the “mainstream”) want to help

We want to build, work for and support social impact businesses.

So..my challenge goes beyond trying to name a social impact business. Please try to make your business into a social impact business.  Not just you business owners, but also you, the influencers, social intrapreneurs, or otherwise like-minded.

We will support you!

 

– – –

Rajah is the Founder and CEO of Clausehound.com — a $10 per month DIY Legal Library containing tens of thousands of legal clauses, contracts, articles, lawyer commentary and instructional videos. Find Clausehound.com where you see this logo.

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Legal Tips and Tricks: Deal Negotiations Using an LOI/MOU

Often, companies will try to secure a Letter of Intent or Memorandum of Understanding (“LOI/MOU”; the two expressions are used interchangeably) from a potential contracting counterparty, for the purpose of outlining the high-level terms of a contractual relationship and to help demonstrate the viability of a project. An LOI/MOU can be used for many purposes, including outlining broad terms of an asset purchase or acquisition agreement.

 

Such high-level outlining is helpful in many circumstances:

1. When securing financing:  it is useful to demonstrate to potential financiers your potential for orders.  Programs like Kickstarter are ideal for that purpose, as, not only are you able to demonstrate orders, paying customers are waiting to receive the finished product.  Use an LOI/MOU to build an order pipeline.

2.  When entering into merger/acquisition discussions:  to set the terms of the future agreement in advance before opening the financial and legal books and records of the company – so that, at a high level, the merger/acquisition value and terms are negotiated in advance.

After the LOI/MOU is settled and the formal agreement is being entered into, certain closing conditions are usually set out, including the statement that nothing has adversely affected the business in a material way since the time of the initial deal negotiation (this is referred to as a “MAC” or Material Adverse Clause).  This is important, to ensure that you are getting what you paid for.

 

3.  When developing the framework for any future agreement: an LOI/MOU can set “guiding principles”, to further the negotiations and discussion to ensure that the parties agree with the spirit of the proposed agreement.

 

Binding vs. Non-Binding Nature of the LOI/MOU

An LOI/MOU is often structured as an “agreement to agree” and not binding.  However, it is useful to include certain binding provisions.  Some consideration must be given to make the LOI/MOU binding, and perhaps this is the opportunity to explore a future business relationship, or something more tangible, such as $500 in cash.

Typically, the binding provisions to include in an LOI/MOU are:

  • Confidentiality: of the deal negotiations, and of information shared between the parties.
  • No-shop“: an agreement not to shop the proposed deal around to other suitors, which adversely affects the party that is disbursing, oftentimes, significant resources into legal and financial due diligence.
  • A “break-fee“: a dollar value penalty, often used to cover legal fees, in the event that a deal – usually an M&A deal – fails for any reason.
  • Termination date: this is useful to prevent the other party from taking the potential deal off the table from other buyers indefinitely.  A “time is of the essence clause” is good to include as well, for this reason.
  • Dispute Resolution provisions:  To plan for the worst, a good dispute resolution process sets out the forum (location) and rules for litigating/arbitrating the LOI/MOU.
  • Duty of good faith:  This places a general duty on the other party to ensure that they are not wasting your time and money through the exploratory process, which is useful to establish if you are forced to go to court to make a claim for expenditures wasted trying to close a potential transaction.
  • Costs:  It’s important to specify who is paying the legal bill up front, especially if you are concerned that the other party is going to try to charge you for it.  A limitation of liability clause is also good to include for this reason.

 

–  –  –

This article is provided for informational purposes only and does not create a lawyer-client relationship with the reader. It is not legal advice and should not be regarded as such. Any reliance on the information is solely at the reader’s own risk. Clausehound.com is a legal tool geared towards entrepreneurs, early-stage businesses and small businesses alike to help draft legal documents to make businesses more productive. Clausehound offers a $10 per month DIY Legal Library which hosts tens of thousands of legal clauses, contracts, articles, lawyer commentaries and instructional videos. Find Clausehound.com where you see this logo.

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Overview of Buy-Sell Agreement

Overview of Buy-Sell Agreement

 

What is this document?

A Buy-Sell Agreement, also known as a Shotgun Agreement or a Buyout Agreement, is a agreement between shareholders that enables the shareholders to end their relationship, and is especially useful when they can’t get along any more. The result is that one of the shareholders is bought out.

 

When would I use this document?

A Buy-Sell Agreement would be used when the shareholders can no longer work together and need to go their separate ways. It can be a stand-alone agreement, or can be included in a shareholders’ agreement.

 

Who signs this document?

A Buy-Sell Agreement is signed by the shareholders of the business.

 

More details about this document

When a shotgun clause is triggered, one shareholder will make an offer to another shareholder to purchase all of their shares.  The offer will state the terms of what the offering shareholder is willing to pay for the other person’s shares.  The other shareholder can either agree to sell all of the shares on those terms, or may choose instead to purchase all of the shares of the first shareholder for the same price per share.  The first shareholder risks either having to buyout the second shareholder, or be bought out him/herself. Regardless of who ends up buying the shares, at the end of the day one of the shareholders will be ‘bought out’. The clause usually requires the person triggering it to state explicitly that they are triggering the shotgun clause with their offer. It is called a ‘shotgun’ clause because once it is triggered there is no choice but to buy or be bought out.

The downside to this clause is that if the first shareholder has enough money to buy out the second shareholder, but the second shareholder cannot afford to buy out the first shareholder, the second shareholder will have no choice but to sell for a potentially low price. Parties can include a minimum price per share in the agreement.

Shotgun clauses can be drafted to account for multiple shareholders as well.

 

What are the core elements of this document?

The core elements of a Buy-Sell Agreement include: Offer to Purchase, Revocability of Offer, Minimum Value of Offer, Restrictions/Quantum of Shares to be Acquired, Acceptance/Rejection of Shares to be Acquired, Time Limits for Acceptance of Terms, and Failure to Make Payments.

 

Related Documents

Shareholders’ Agreement – agreement between shareholders that governs relationships between shareholders, including shareholder ‘exits’ from the corporation

Share Purchase Agreement – agreement governing the sale of shares

 

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Overview of Memorandum of Understanding – Separation of Business Organizations

Overview of Memorandum of Understanding – Separation of Business Organizations

 

What is this document?

A Memorandum of Understanding (MOU) is often the first stage in the process of negotiating a formal agreement, and it sets out the main features that the parties understand will be included in their agreement. If an agreement is binding, it is legally enforceable. An MOU can be binding or nonbinding, or only binding in part, depending on the exact wording of the MOU.

This document is a binding MOU between two entities who wish to separate their business interests and operate independently of each other. The particular nature of the business is described in the Background section of the agreement.

 

When would I use this document?

This MOU would be used when a business that has been operated under the umbrella of an organization is to be separated from the organization and operated as a separate business. This agreement refers to a non-profit organization.

 

Who signs this agreement?

This agreement would be signed by the authorized representatives of both organizations.

 

More details about this document

When separating business organizations, it is important to specify what assets belong to each organization. This would include assets such as bank accounts, accounts receivable, stock in trade, equipment, intellectual property, customer contracts etc. It is equally important to divide the debts and liabilities and obligations eg. accounts payable, insurance, rent etc.

This agreement sets out which party will have responsibility/ownership of the assets and liabilities of the business. It includes clauses dealing with confidentiality and non-competition.

 

What are the core elements of this document?

The core elements of an MOU include Parties, Binding/Non-Binding nature of the agreement, Termination, Terms, Expenses, Confidentiality.

 

Related Documents

Letter of Understanding – similar to an MOU

 

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Overview of Business Name Assignment Agreement

Overview of Business Name Assignment Agreement

 

What is this document?

A Business Name Assignment Agreement is a legal document where one party assigns, or transfers, their business name or trademark to another party.

 

When would I use this document?

A Business Name Assignment Agreement would be used when one party is selling its business to another party, or a party is taking over another party’s business.

 

Who signs this document?

A Business Name Assignment Agreement is signed by the party assigning the business name (the assignor), and the party who the business name is being transferred to (the assignee).

 

More details about this document

A Business Name Assignment Agreement is generally a one-sided basic short-form agreement in favour of the assignee. It confirms that the assignee will be the legal owner of the business name.

The name being assigned can be a registered or unregistered business name, domain name or a trademark.

If some of the rights are not assignable for any reason, the assignor will generally grant a license for the assignee to use those rights.

An assignor will want to ensure that a strict payment clause is included in the Business Name Assignment Agreement, or in the related sales agreement.

An assignee will want to ensure that they receive all rights to the business name being assigned, and that the assignor does not attempt to file a claim against them for rights to the business name.

 

What are the core elements of this document?

The core elements of a Business Name Assignment Agreement include: Transfer of Rights; License to Rights; and Release.

Additional clauses could include: Payment; Entire Agreement; and Governing Law.

 

Related Documents

Nondisclosure/Confidentiality Agreement – an agreement that protects confidential information.

Intellectual Property Transfer, Assignment and Release – an agreement that transfers the intellectual property from one person to another.

Share Purchase Agreement – agreement governing the sale of shares.

Asset Purchase Agreement – an agreement for the sale of the assets of a business.

 

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Overview of Cease & Desist Letter

Overview of Cease & Desist Letter

 

What is this document?

This Cease & Desist Letter seeks to prevent a party from using another party’s registered trademark without permission.

 

When would I use this document?

This Cease & Desist Letter would be used where a party (i) has registered a trademark, (ii) has noticed another individual, corporation or other entity using the registered trademark without permission, and (iii) would like the infringing party to stop using the trademark. A Cease & Desist Letter is often used prior to taking legal action against such infringing party.

This particular letter would be used where the infringing party did, at some point, have a license to use the registered trademark, such as through a Consulting Agreement or a Distribution Agreement.

 

Who Signs this Agreement?

This letter will be signed by an authorized representative of the party seeking to prevent the trademark from being used without permission.

 

More details about this document

While a Cease & Desist Letter may contain a variety of information and demands depending on the circumstances, there are certain facts that are important to include. In general, it is best to provide as much detail about the trademark infringements as possible, such as dates, times, locations, and, if on a website, screenshots of the infringements being referred to in the Cease &  Desist Letter.

It is also important to include details about the infringing party’s original license to use the trademark, and why that license is no longer in effect.

 

What are the core elements of this document?

The core elements of the letter include: identification of the registered trademark, details regarding the alleged infringements, details regarding the original license to use the trademark, and consequences for failure to stop using the trademark.

A Cease & Desist Letter may also include any number of appendices, typically visual evidence of the trademark infringements being referred to in the letter. If applicable, the agreement under which the license to use the trademark was granted, such as the Consulting Agreement or Distribution Agreement, can be appended to the Letter.

 

Related Documents

Contractor/Consulting/Services Agreement – this type of agreement can have various names, and is used when a person is paid to provide services but is not hired as an employee. This agreement can specify whether a license to use the trademark was granted or not.

Distribution Agreement – an agreement for the distribution of products, to be used if a party is both referring clients and distributing the other party’s products. This agreement can specify whether a license to use the trademark was granted or not.

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Overview of Deed of Assignment of Intellectual Property

Overview of Deed of Assignment of Intellectual Property

 

What is this document?

A Deed of Assignment of Intellectual Property is an agreement between an individual or corporation transferring its intellectual property to another individual or corporation, but signed as a deed.

 

When would I use this document?

A Deed of Assignment of Intellectual Property can be used in a number of situations, including when a corporation is acquiring another corporation, founders are incorporating a business, and when a party is purchasing a product from another party. It can also be for the assignment of IP by employees. A deed is a formal document and requires the signature of a witness. Deeds do not require the parties to provide consideration for the agreement, so a deed is useful if the agreement is very one-sided. A deed is also used if the laws of the jurisdiction require the contract to be in the form of a deed.

 

Who signs this document?

The party assigning its intellectual rights (the assignor) and the party receiving the assigned intellectual rights (the assignee), as well as witnesses to those signatures, will sign this document.

 

More details about this document.

The assignment of intellectual property rights is permanent and the assignor will have no further rights to the intellectual property.  

Intellectual property that may be assigned includes domain name rights; trademark rights; patent rights; an invention; a business name; copyright, source code etc.

The agreement can also include a release, where the assignor agrees to not bring any claims for rights to the intellectual property.

 

What are the core elements of the document?

The core elements include: Definition of Intellectual Property; No Third Party Infringement; Release, Assignment, Moral Rights, Waiver and Warranties.

Additional clauses may include: License to Non-Assignable Intellectual Property; Dispute Resolution, Disclaimer; and Compensation.

 

Related Documents

Nondisclosure/Confidentiality Agreement – an agreement that protects confidential information.

Intellectual Property Transfer, Assignment and Release – an agreement that transfers the intellectual property from one person to another eg. from a consultant/contractor or employee to the person who ‘hired’ the consultant/contractor or employee.

Contractor/Consulting/Services Agreement – this type of agreement can have various names, and is used when a person is paid to provide services but is not hired as an employee. Payment can be flexible eg. money, shares or some other form of compensation.

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Overview of Credit Agreement

Overview of Credit Agreement

 

What is this document?

A Credit Agreement is a contract made between a borrower and a lender. It establishes how much money the borrower will lend, as well as the terms of the loan.  

 

When would I use this document?

A Credit Agreement is a special type of loan agreement where the lender provides a ‘credit facility’ for a ‘permitted loan amount’. The lender agrees to provide a maximum amount of credit, for a specified length of time, which the borrower may or may not draw upon to borrow money.

 

Who signs this document?

The Credit Agreement is signed by authorized representatives of the borrower and the lender.

 

More details about this document

A Credit Agreement provides the structure within which money will be lent to the borrower. The agreement will establish the maximum credit (permitted loan amount) which can be borrowed by the borrower in ‘drawdown amounts’ from time to time. Each time money is ‘drawn down’ the lender will have to sign a Promissory Note payable to the lender for that amount.

The borrower agrees to grant a security interest in collateral to secure payment of the Promissory Notes, in accordance with a General Security Agreement (which can be attached to the Credit Agreement as a schedule). This can permit the lender to dispose of the borrower’s collateral (e.g jewellery, shares, vehicles, accounts receivable etc.) to obtain the money owed if the borrower defaults on the loan.

Credit Agreements can range in length depending on the complexity of the loan and how the payments will be paid. In some cases loans can be repaid in a lump sum or can be paid in installments over a specified period of time. Lenders will include an interest clause in the document stipulating what interest rate is to be paid on the loan amounts, and when interest payments are due.

The agreement will provide for events of default and remedies on default, as well as the maturity date for the loan(s).

 

What are the core elements of this document?

The core elements include: Parties, Permitted Loan Amount, Payment, Interest Rate, Maturity Date, Default, Security Interest, Collateral, Warranties,Termination and Survival.

Some examples of additional clauses include Notice, Amendments, Cure Period, Expenses, Arbitration and Indemnification.

 

Related Documents

Promissory Note – a written promise to pay used to provide security for payment

Loan Agreement – an agreement that sets out the terms of a loan

General Security Agreement – an agreement that grants a security interest in collateral to ensure the repayment of a loan or other debt.

 

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Additional Rent Announcements API Approval of Terms Asset Purchase Agreement Background Intellectual Property Board of Directors Business Case Law CASL Clausehound Collaboration Commercial Lease Confidential Information Confidentiality Consulting Agreement Contract Drafting Contract Negotiations Corporation Costs and Expenses CPD Definition of Intellectual Property Dispute Resolution Distribution Agreement Employee Employment Employment Agreement ESOP Events Farming Law Generally Used Clauses Grant of Licence Handling of Confidential Information Indemnity Independent Contractor Independent Legal Advice Informal Discussions Intellectual Property Intellectual Property Transfer Investor Journey Licence Restrictions Limitation of Liability Long Form Marriage Contract Master Services Agreement NDA Non-competition Not for Profit Articles of Incorporation Notice of Arbitration No Waiver Obligations Ownership of Intellectual Property Ownership of Work Product Parties Partnership Privacy Policy Product Sales Agreement Purpose Representations and Warranties Restrictive Covenants Safeguarding Requirements Settlement Agreement Shareholder Agreement Software Development Start-up Subscription Agreement Technology Termination Term Sheet Terms of Use Trademark Registration Transfer of Intellectual Property Waivers and Releases Website Terms of Use
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