Why do SaaS contracts need to set out parties?
Software as a service contracts are just let any other form of contract – to be legally binding they require four things. Contracts require a valid offer and acceptance, sufficient consideration, capacity, and legality. For a valid offer and acceptance to exist there must be at least two different parties for this offer to be made, and accepted by. These parties are usually outlined at the start of the contract, they are defined and then given terms with which the remainder of the contract will use to refer to them, such as Provider or Supplier and Customer, Purchaser or User.
An example of SaaS Contract Parties
1. [[INDIVIDUAL NAME] of [address]] OR [[COMPANY NAME], a company incorporated in [United States of America] (registration number [registration number]) having its registered office at [address]] OR [[PARTNERSHIP NAME], a partnership established under the laws of [United States of America] having its principal place of business at [address]] (the “Provider“); and
2. [[INDIVIDUAL NAME] of [address]] OR [[COMPANY NAME], a company incorporated in [France] (registration number [registration number]) having its registered office at [address]] OR [[PARTNERSHIP NAME], a partnership established under the laws of [France] having its principal place of business at [address]] (the “Customer“).
Breaking down the above we can see that parties are not only named but also the legal jurisdiction to which they are registered in is identified, the type of business they are is identified (incorporated, limited, etc) and their principal place of business is identified. It’s important for readers of the contract to understand the laws under which the companies involved must abide by as this can have an impact on whether or not the clauses can be adhered to or whether or not the legal outcomes of breaking a contract are appropriate.
Does the type of company and location influence the contract?
When software as a service companies are starting out and negotiating B2B SaaS contracts they are often in a position where they have little negotiating power. This can mean that despite being a platform that is delivered from one place in the world your customer wants to ensure the laws of their country prevail in the contract. This is a contentious issue but often, as an early startup you make these concessions and take the low commercial risk of this to close sales with these early customers. The hope is that later, once your product is embedded in their company and you are renewing their contract that you can renegotiate this and justify having the prevailing law being in the country you operate in.
The type of company also can influence SaaS contract negotiations. Different types of companies work differently when there are issues around insolvency or bankruptcy and this can influence the risk that a customer sees in signing a contract with you. This could mean they look to add in clauses that are more onerous on you.
Should I contract with subsidies or only head office?
The party you contract with doesn’t usually have an immediate affect on a deal you’re closing. Large enterprise companies may have multiple regional or product focused subsidiaries, each of which may be easier to contract with than head office. This might shorten your procurement cycle and speed up your sales cycle. This is especially true if you contract with a local subsidiary. But the downside of this is that if you have a land and expand model you may have to go though the procurement path all over again if you want to sell to a different part of the company. If contracting with head office as the buyer is an option this is more often than not worth the pain of negotiating contracts.
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