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Why do I need to sign an NDA with my business partners?

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Entrepreneurs may wonder whether they should sign a non-disclosure agreement with their co-founders. After all, they’re on the path to a common goal and wouldn’t want to jeopardize the success of their business, right? You would think that would be the case, but when entering into a business with friends, co-founders often expect and rely on the best outcomes – rather than preparing for the worst.

Here are two reasons why you should sign an NDA with your co-founders:

 

 1. The company will survive the individual relationships

During the honeymoon stage, it may appear that nothing can ever break the founders apart. However, it’s easy to outgrow positions, people and ideas. For this reason, founders remaining in the company will want to ensure that those leaving the company will not disclose the company’s confidential information to third parties or competitors. Founders remaining in the company will also want to ensure that those leaving do not use confidential information in order to compete with the business.

Preference would be to sign a non-disclosure agreement during the honeymoon stage, in order to avoid contentious disputes during the more difficult resignation/termination stage.

 

 Source

 

2. Working for the benefit of the corporation

When individuals partner up to bring an idea into reality, it’s important to remember that their work is solely for the benefit of the business, and not for themselves individually.

Entering into a non-disclosure agreement will ensure that the founders will not use business ideas intended for the benefit of the company to benefit themselves, instead.

When entering into an agreement with potential co-founder(s), parties can choose to sign a mutual non-disclosure agreement. That way, one party (hopefully) won’t think the others are targeting them personally or implying that they will leak confidential information, since everyone is accepting the same non-disclosure obligations.

Discuss the need to sign an NDA with your co-founders early on in the process, and point out the benefits to everyone, including the company.  After all, if you’re dreaming of selling your shares for a huge profit some day, the purchaser will likely insist on an NDA – so put one in place that protects everyone at all stages of the business!

 

For sample non-disclosure agreement templates, check out Clausehound’s Small Business Law Library!

 

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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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Can an entire agreement clause preclude a party from having to uphold general or implied duties of contract law?

ENTIRE AGREEMENT CLAUSE DOES NOT PRECLUDE IMPLIED CONTRACTUAL DUTIES

Bhasin v. Hrynew [2014] 3 SCR 494, 2014 SCC 71 (CanLII)

The Supreme Court of Canada held that parties are not free to exclude general duties of contract law, so entire agreement clauses cannot exclude general duties related to unconscionability and honesty in contractual performance.

If the parties intend to exclude implied terms, drafters should ensure that the entire agreement clause expressly excludes implied terms. A generic entire agreement clause will not indicate the intent of the parties to depart from the basic tenents of honest performance of the contract, so any standards related to the level of honesty in performance should be expressly stated in the agreement.

In Bhasin v. Hrynew, 2014 SCC 71 (CanLII), the Supreme Court of Canada held that at common law there is an organizing principle of good faith that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily. This means that there is a duty of honesty in contractual performance which is a general duty of contract law which applies to all contracts, and which the parties are not free to exclude. The entire agreement clause cannot exclude those duties which at law are already part of the contract, even if they are not expressed in writing in the contract. The court stated that any modification of the duty of honest performance would need to be in express terms, so generically worded entire agreement clauses would not indicate the intent of the parties to depart from the basic tenets of honest contractual performance. The Court did not state that an entire agreement clause could not exclude implied terms. Entire agreement clauses which expressly exclude implied terms could apply to exclude such implied terms if those terms are not also general duties of contract law.

To read the full case on CanLII, click here,

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How to Properly Sign a Contract – e-Signatures

Except for few specific circumstances, it is almost considered ancient to have parties to a contract physically meet up to a sign a contract in a boardroom. With the fast-paced lifestyles of most high-level executives, a more efficient method of signing contracts has been introduced: the e-Signature.

 

Although convenient, do e-signatures really create a valid and binding contract? Can e-signatures really replace hand-written signatures?

 

The Law

 

An e-signature can be considered a valid signature. In various jurisdictions, legislatures have enacted laws to deal with electronic signatures. For example, section 11 of Ontario’s Electronic Commerce Act provides:

 

“Subject to subsections (3) and (4), a legal requirement that a document be signed is satisfied by an electronic signature.”

 

But what if you didn’t provide the e-signature?

 

In a recent case, Ghaed v Telus Communications Co, 2013, (BC) the plaintiff disputed his obligation to make a payment under a signed services contract. The plaintiff argued that although the agreement had his electronic signature, since he had not placed the electronic signature on the agreement, he was not bound by it. It was established that the signature had been placed on the agreement by his office manager. The office manager stated she was given express consent by the plaintiff to accept the services contract. Based on this sequence of events, including an opportunity for the plaintiff to terminate the contract, the court found that the services contract was valid and binding on the plaintiff.

 

The Exceptions

 

An electronic signature may not be an acceptable method of signature for all legal agreements. The following agreements cannot be validated by an electronic signature (in Ontario):

 

  • Wills and codicils;

  • Promissory notes; and

  • Documents transferring land title.

Before you e-sign away…

 

  • Ensure that you have agreed to all the terms of the agreement and the other party’s information has been included in the execution line.

  • The electronic signature should be reliable in identifying the signee. A simple copied image of a signature may not be traceable to the signee. However, a digital signature used in conjunction with a document signing software may suffice as reliable in identifying the signee.

  • In order to avoid uncertainty and a potential dispute, it may be a good idea either to confirm with the other party that electronic signatures are permissible for the execution of the contract, or to include a clause in the contract recognizing the validity of electronic signatures.

 

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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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What should I look for in a commercial lease?

While most commercial leases are standard, you should still be careful about what you sign. The fine print matters, and every clause is important! For example, you may find yourself locked into a lease renewal you didn’t want, or  you may discover that you have agreed to absurd hikes in monthly rent payments.

Here are 6 of the many clauses to be aware of before entering into a commercial lease!

 

 

1. Renewal Clause

Most leases are for 1+ years. Once the term is over, you typically begin to occupy the space on a month-to-month basis. In some leases, a renewal clause may be included which would allow you to continue occupying the space under the same or similar terms and conditions.

 

Renewal may be automatic or optional on mutual agreement by the landlord and the tenant. Automatic renewal clauses will extend the lease for a stated period of time, unless you give notice of non-renewal within a stated period of time, and by using the stated notification process. If you have the option to renew, you may be in a position to renegotiate your agreement. Either way, pay close attention to the renewal clause as certain dates will be included as well as the procedure for initiating the negotiation procedure, such as providing notice to the landlord of your intent to renegotiate. The deadlines to this process are essential. It is a good idea to mark these dates in your calendar, and give yourself a notice period so that you can prepare to either renegotiate, or to find other premises to rent.

 

Signature, Sign, Writing, Pen, Author

Source 

2. Acceleration Clause

An acceleration clause provides the landlord with the right to demand the entire balance of the unpaid rent for the remainder of the term. Usually, the landlord is entitled to collect monthly payments as they become due. In spite of this, in the event that some payments are missed, the acceleration clause allows a landlord to mitigate damages by invoking this right before looking to court proceedings. Acceleration clauses can vary greatly so it’s important to know exactly what a landlord can demand from you in the event of a default under the lease.

 

3. Rent and Rent Increases

Many commercial leases will provide for a ‘base rent’ and ‘additional rent’. Be sure to calculate the total amount of rent when determining whether the lease is right for you. The total rent can be more than twice as much as the base rent once all costs have been included. Standard rent increases will likely be included in your lease, but changes in utilities or other shared costs may also result in proportional rent increases.

 

The occurrence of specific events (eg. an increase in property taxes on the premises) may also impact your rent. If you are signing a ‘net lease’, make sure you understand all the additional responsibilities you may have (eg. HVAC repairs) in addition to rent. Depending on the type of lease you are signing, make sure to read it carefully, or speak with a lawyer who can explain it to you, so that you know what to expect.

 

4. Utilities Payments

Utilities may be included in the rent but take caution. If you are listed as a utility account holder, then you’ll be liable for those payments. There are different combinations of utilities that may be included in your monthly rental payment. If you are in a position to negotiate, you may be able to reduce your rent depending on the extra utilities you’ll be paying for.

5. Sublease & Assignment

Your lease may allow you to sublease or assign your obligations, so look for provisions allowing for either right.

 

In a sublease, a subtenant would rent a portion of the property or even the entire property from you for a short period of time. A new agreement would be drafted between you and the subtenant, but you are still responsible for all obligations to the landlord. Such a provision will provide that landlord approval is required for any subleasing activities.

 

In an assignment, the assignee is agreeing to carry out your agreement with the landlord for the remainder of the term. The assignee will be responsible for all obligations to the landlord. Similarly, a clause allowing for assignment will require approval from the landlord so that certain checks, such as background or credit, may be conducted, and the lease can be amended accordingly. You should read the assignment carefully, because you or your guarantor may still be liable for the obligations under the lease until its termination. Be sure to obtain a release from the landlord and the assignee, if possible.

Calculator, Table, Bill, Work, Pay

Source

 

6. Common Elements

Use and access to common elements will often be included as a clause. Not all common elements are “common”. For example, the landlord or other tenants may have exclusive possession or use of a common element, such as a parking spot. Make sure you understand how you can use these common elements or areas. Be aware of your responsibilities for garbage and snow removal as well.

 

You will also want to be aware of many other aspects of the lease – what use you can make of the premises; what types of insurance you must obtain; what hours your business must/may operate; what signage is permissible; what repairs are the landlord’s responsibility; who will pay for improvements to the premises etc. Be sure to consult a legal advisor if you are unclear about your obligations!

 

Check out commercial lease templates and samples of the clauses discussed here in the Clausehound Small Business Law Library!

 

This blog was co-authored by Vi Vo.

 

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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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What legal agreements should be signed before giving a project to a software developer?

You had a brilliant idea, set up your company, and now it’s finally time to make your dreams a reality and bring your product to life! When hiring a developer to help build your software or mobile application, it is important to take the time to agree on points such as:

  • The scope of the project;
  • The relationship between the parties;
  • Confidentiality obligations; and
  • Ownership of intellectual property.

 

A long-form software development agreement can cover all of these points, but if you’re looking for customized and specific terms, you may decide to draft agreements specific to your needs and retain them as schedules.

 

Software Development Agreement

A software development agreement is a standard agreement stating a developer’s intent to develop a software product, or “work”, for a company. Boilerplate terms that a standard software development agreement will cover include:

  • The scope of work to be provided, including project milestones, testing procedures, and pricing;
  • The transfer of intellectual property from the developer to the company; and
  • The parties’ liability and indemnification obligations.

Often, parties will include or negotiate additional clauses based on their needs, like:

  • Subcontracting rights;
  • Warranty provisions; and  
  • Insurance obligations.

Consulting Agreement

Typically, a software developer may not be considered an employee of the company, so covering the contractual nature of the developer’s work can serve to clearly assert this boundary. For example, a company entering into a consulting relationship with a developer will often include the following terms:

  • Compliance with the company’s policies;
  • Limitations on the consulting relationship (i.e., the consultant is not an employee); and
  • Non-competition and non-solicitation obligations.

Confidentiality Agreement

When a developer has access to a company’s customer data and records, it is understandable the company will want to prevent this information from being disclosed to its competitors.

You can view and customize a sample consulting agreement on Clausehound:

All employees, developers, and even subcontractors should be bound by confidentiality provisions. Depending on how comprehensive a company wants the confidentiality obligations to be, it can either include a standard confidentiality clause in a software development agreement or include a specific confidentiality agreement in a schedule to the agreement. A confidentiality agreement will generally include the following terms:

  • The inclusions of confidential information;
  • The purpose the information may be used for; and
  • The handling of the confidential information and return of the confidential information.

 

Intellectual Property Transfer Agreement

The developer is developing a work product that is based partly on the work of the company, but mostly on the work of the developer. The developer may have other employees or subcontractors working on the final deliverable for the company.

To protect its rights to the fullest, many companies will ask the developers to and have their employees/subcontractors sign separate intellectual property transfer agreements. Such an agreement could include clauses such as:

  • A transfer of the intellectual property and a license to the developer’s’ background intellectual property;
  • A transfer of moral rights; and
  • A representation of no third party infringement in developing the “work”.

 

To see a standard software development agreement, visit our Small Business Law Library!

 

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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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What Makes a Contract Enforceable?

It’s your average Saturday night in the big city. A woman meets a man at a bar. He offers to buy her a drink. She happily accepts and they exchange phone numbers. The next morning, the woman receives an unexpected text message from the man: he is asking her to e-transfer him the money he spent on her drink.

jarmoluk / Pixabay 

She quickly agrees and transfers the money, but takes the question to social media—should she have repaid him? The responses come flooding in, with 17% of people saying she should have paid him and 83% saying she should not have.

This is not the first time people have reported such incidents. There are numerous stories that can be found on the Internet about people requesting to be reimbursed for coffee or a drink upon being turned down for a second date.

While these are light-hearted examples of slightly eccentric dating behaviour, the stories are actually a real-world manifestation of a legal issue—namely, when is a contract valid and enforceable? The short answer to the above scenario is that no, there was no obligation to reimburse those stingy daters because there was no valid and enforceable contract between the parties. In order to understand why, we need to look at the purpose of contract law and the core elements that make a contract valid and therefore enforceable against a breaching party.

 

To see all of the contracts offered by Clausehound.com, click here!

legal-tender-logo-220x82-2_Artboard 2

 

Why do we enter into contracts?

There are a number of reasons for which we voluntarily choose to enter into contracts that, in effect, act as constraints on the choices we can make. Broadly stated, we enter into contracts in order to enforce promises. More specifically, we enter into contracts to bring clarity to the terms of an agreement, to set up a framework for an agreement, and to both fulfill and protect our reasonable expectations. This is certainly not an exhaustive list of the functions of contract law, but rather is a list of some basic things to consider when entering into a contract.

What are the elements of a valid and enforceable contract?

There are six elements to a valid contract:

  • There must be an intention to form a legal relationship. The question to be asked here is whether a reasonable person in the circumstances would have intended to form a legal relationship.
  • There must be consideration provided by both parties. This requires that each party provide something of value.
  • There must be an offer made and a corresponding acceptance of that offer.

 

Legal Tender-logo-high-res-3-02 (1)

 

  • There must be a meeting of the minds. In making an offer and accepting the offer, the parties must be “of one mind” when it comes to understanding the agreement.

    The terms of the agreement (namely the parties, price, property, and particulars—also known as the “Four P’s”) must be certain.

  • The contract should be evidenced in writing and executed. As the great Stevie Wonder has forever engrained in our minds, the contract should be “signed, sealed, delivered.” It is important to note that only a limited number of agreements are actually required, by law, to be drafted in writing. It is, however, prudent to do so whenever possible.
  • As an overarching requirement, the parties to the contract must have capacity to enter into the contract. This means that they must not be (i) mentally impaired, (ii) intoxicated or under the influence of any substance, or (iii) a minor.

So, take our daters from the scenarios outlined above. There was no intention to form a legal relationship, consideration was provided by only one party, there was no meeting of the minds, there is no evidence of the agreement in writing, and, depending on the intoxication level of the parties, there may be questions regarding capacity. All in all, unlikely to be a valid and enforceable arrangement.

 

Catkin - Pixbay - agree-1728448_640

Catkin / Pixabay

 

Helpful contractual clauses

In order to help ensure that your contracts are upheld as valid and enforceable, there are certain clauses that can be included in any agreement. A Validity Clause, for example, states that the parties agree that the contract is valid. A Capacity Clause states that the parties have the capacity to enter into the contract. Other standard contractual language can be included, such as an explanation of the purpose of the agreement, recital language about the consideration to be provided, and detailed clauses outlining the Four P’s.

To see examples of a variety of standard contracts, visit our Small Business Law Library!

 

By: Samita Pachai, Articling Student at Cobalt Lawyers, and Farrah Rahman, Knowledge Content Manager at Clausehound.com

 

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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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Breitbart vs. Kellogg’s: When business gets politicized, terms get forgotten

Breakfast is the most important meal of the day, but you’ve probably never heard of your morning bowl of cereal “serving up bigotry at your breakfast table.” That’s what conservative news source Breitbart said about Kellogg’s just this past week.

Kellogg’s was scrutinized on social media for advertising with Breitbart, and as a result pulled its ads from the website citing the website’s values “aren’t aligned with the values of the company.” In quick succession, many other companies pulled their advertisements from Breitbart, including names like Allstate and Warby Parker.

Source

Breitbart has responded with swift and uncalculated retaliation, calling for people to #DumpKelloggs by boycotting the food company’s products. The news website has also been publishing a series of articles that stir up old negative publicity about Kellogg’s, including headlines like SHOCK: Amnesty International Blasts Kellogg’s for Using Child Labor-Produced Ingredients” and “Criminal Investigation Opened After Man Appears to Urinate on Kellogg’s Cereal Assembly Line.”

First things first, none of these companies had any idea who they were advertising with—they all work through third-party agencies that target and make deals for them. As a result, Breitbart isn’t exactly justified in saying Kellogg’s is a hypocrite for backing out when they never directly committed to them anyways.

The politicization of this point is what has left the issue much more complex than the business of it. Breitbart is a right-wing news source—some might even say alt-right. The public pressure companies face is often more left, making the waters of corporate social responsibility murky.

It is useful to look at the situation objectively. Breitbart did not have a contract with Kellogg’s, and Kellogg’s did not have one with Breitbart. Instead, their dealings were mediated by a third party marketing or advertising agreement. Inside of this agreement, the contractual language related to termination is key.

The agreement would have, ideally, well-constructed and fair termination clauses. Termination for Convenience allows a party to, unilaterally, end an agreement upon notifying the other party, with reason or not. More restrictive would be Termination for Cause, where a reason is required and often comes from a predetermined list of reasons.

Keeping that in mind, and whatever termination language is in the Breitbart-Kellogg’s contract, there probably isn’t any sort of breach of contract. Breitbart isn’t pursuing action for them leaving the agreement for any contractual reason. They’re just sore about it, and that’s where real action could be taken—by Kellogg’s.

libel

Source: NY Photographic

Kellogg’s may choose to bring a  libel claim against Breitbart.

Libel is defined as “a written or oral defamatory statement or representation that conveys an unjustly unfavorable impression.” This is where more specific termination language related to defamation, non-disparagement, and libel and slander would have been useful for Kellogg’s to push for inclusion in their contracts. It would give them the footing to hold Breitbart to civil liability and make up for losses caused by this whole controversy. However, at this time Kellogg’s doesn’t look like it’s going to diverge from its aim to disengage, even as Breitbart continues to instigate.

Libel can be difficult to prove, but it is not impossible. For example, in Leenen v. Canadian Broadcasting Corp. (2001) (ONCA), the CBC aired a television special on the questionable use of potentially harmful heart medication by cardiologists that was found to have been defamatory. To prove the cardiologist’s claim of libel, the statement had to be made to a third party, be identifiably about the cardiologist, and considered defamatory by the judge.

In deciding if what a party has done is libelous or not, the courts often have to consider if what was said can be considered a fair commentary on the situation, or if it was justified as per public interest. Of course, the politics of the issue would become relevant at this point. However, it can be difficult for the law to offer an opinion, because the question here would essentially be who is speaking the truth, the right or the left? That’s a scary question to have the law decide upon, so perhaps it’s for the best that that question isn’t being brought up.

To see a standard software development agreement, visit our Small Business Law Library!

 

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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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Knowledge is treated differently than action for public policy

Generally, the courts have stated that they will not lend their aid to a person whose claim is based upon an immoral or illegal act.

However, the courts may lend aid to a person whose contract has some immoral/illegal aspect where such person is not themselves involved in the immoral/illegal act. For example, in Holman v Johnson (1775 ), the Plaintiff contracted and delivered tea to the Defendant knowing that it was being bought for the purposes of smuggling. The Plaintiff sues for the breach of contract after the Defendant failed to pay for the tea. The Defendant argued that this contract was void as against public policy. The court held in favor for the Plaintiff who was entitled to recover. The plaintiff had not committed an offense as delivery and sale of the tea were legal activities that occurred prior to the proposed smuggling plan, and the plaintiff’s contract was complete once the goods had been delivered. The Plaintiff was not involved in the smuggling operation post-deliver, and therefore had not entered into a contract for an illegal/immoral purpose.

 

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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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