So you’ve built a great MVP and now it’s time to get selling? Great, now comes time to get your business into a position that allows you to set up a legal buyer – seller relationship. To get there you’ll need to get five essential startup legal documents into place. Each of these documents is extremely important for you to be able to sell to your customers and protect your business and yourself from risk. Let’s have a look at what these documents are and when you should get them in place.
Essential Startup Legal Documents
If you’re starting a business of any type you’ll be creating a legal relationship with your customers. This sits at the heart of any business and there are a number of considerations when you’re providing a SaaS product. At the end of the day you’ll need to have these things in place so that you can get paid and be protected.
SaaS Terms and Conditions
Terms and conditions for a SaaS company, often referred to as “SaaS Terms of Service” are a set of legal clauses that outline the terms under which your SaaS product or service is provided to customers. These terms and conditions are extremely for your SaaS business for a number of reasons:
- Legal Protection: SaaS terms and conditions provide legal protection for both your company and your customers. They help define the rights and responsibilities of each party, reducing the risk of legal disputes if something goes sour.
- Liability and Dispute Resolution: They outline the limitations of your liability and the process for dispute resolution in the case of a data breach or something similar.
- Usage Rules: They define how customers can use your SaaS product, including any restrictions, prohibited activities, and acceptable use policies. Think along the lines of what they can upload to your platform or a fair use policy on your API.
- Payment Terms: They specify pricing, billing cycles, payment methods, and any applicable refund or cancellation policies. We all gotta get paid!
- Intellectual Property: They clarify SaaS intellectual property rights, including ownership of the software, copyright, and any user-generated content.
- Termination and Renewal: They outline the conditions under which the agreement can be terminated, and whether there are automatic renewals and if there is terms around termination for convenience.
- Updates and Maintenance: They detail your company’s policies regarding updates, maintenance, and support, such as service interruptions, downtime, and scheduled maintenance. This often comes in the form of a service level agreement which we’ll talk about below.
- Warranties and Guarantees: They specify any warranties or guarantees related to the performance, availability, and functionality of the SaaS product. You may even include SaaS contract carve outs in this.
- Compliance: They ensure your SaaS company complies with industry regulations and standards, protecting your business from potential legal consequences.
- User Responsibilities: They outline customer responsibilities, such as maintaining the security of their login credentials and adhering to acceptable use policies.
- Changes to Terms: They explain how and when changes to the terms and conditions will be communicated to customers, ensuring transparency and customer awareness.
SaaS terms and conditions are essential for protecting both your business and your customers, establishing clear rules and expectations, and ensuring legal compliance. They also serve as a reference point for dispute resolution and can help build trust with your customers by demonstrating your commitment to transparency and fair business practices. To create effective terms and conditions, it’s advisable to consult with legal counsel to ensure they are tailored to your specific SaaS business and adhere to relevant laws and regulations.
Master Service Agreement? What’s an MSA?
A Master Service Agreement (MSA) for a startup is a legal document very similar to terms and conditions on your website. The core difference is that an MSA serves as a document between you and just one customer (whereas the terms and conditions on your website serve as the terms for all customers that use your product). An MSA is one of the five essential startup legal documents for B2B SaaS companies that are selling to enterprise. The majority of the key elements and purposes of an MSA for a SaaS startup are similar to that of your terms and conditions but as an agreement with on customer here are some places it could differ:
- Service Description: You’re likely, especially if you’re an early stage startup, to offer custom services like program management to your B2B customers. This is where you’d keep that information.
- SaaS Payment Terms: Enterprise customers love to negotiate payment terms, expect something custom.
- Intellectual Property: You’ll need to be very clear with you IP rights in your MSA with enterprise customers. They often don’t have a lot of experience acquiring SaaS products and expect IP to be handed over. Watch out for this and clearly explain your use case.
- Data Handling and Security: Establish a process of clear communication for data handling and security. You’ll need to have this in place to build trust with larger ticket customers.
- Liability and Indemnification: Expect a lot of SaaS liability limit negotiation to happen with larger customers.
- Change Control: This section explains how changes to the services or terms will be managed and communicated. This is important and a lot of larger customers will want this to be clear and often you’ll have them on an enterprise plan without the ability to upgrade on the platform.
- Miscellaneous Provisions: This includes clauses related to force majeure, governing law, notice requirements, and the order of precedence in case of conflicts with other agreements.
An MSA is a foundational document when you’re selling B2B especially to large enterprise customers. It promotes transparency, clarifies responsibilities, and helps protect both your company and your clients. It’s essential to have legal counsel review and customize your MSA to suit your specific business model and industry.
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Service Level Agreement for SaaS
A Service Level Agreement (SLA) for a SaaS startup is a formal contract that defines the expected levels of service quality and performance that customers can expect from the SaaS product. SLAs are critical for setting clear expectations and maintaining customer satisfaction and generally have penalties in place for a breach.
In a SaaS context, an SLA typically covers aspects such as system uptime, response times for customer support, data security, and other key performance indicators. For example, it might specify that the SaaS platform should have a guaranteed uptime of 99.9% or that customer support requests will receive a response within 24 hours.
SLAs serve several purposes for SaaS startups. They provide a benchmark for measuring and maintaining service quality, ensure transparency with customers, and offer a basis for accountability, especially for business critical software. In the event of service disruptions or failures to meet agreed-upon performance levels, SLAs often outline remedies, such as service credits or refunds, which can help maintain customer trust and demonstrate a commitment to service excellence. Overall, SLAs are a vital tool for establishing and maintaining strong customer relationships in the SaaS industry.
A Data Processing Agreement
A Data Processing Agreement (DPA) for a SaaS startup outlines the terms and conditions regarding the processing of customer data on behalf of your SaaS service. DPAs are particularly relevant when your SaaS platform involves the collection, storage, or processing of personal or sensitive data, as they are designed to ensure compliance with data protection laws, such as the General Data Protection Regulation (GDPR).
In a DPA, your startup, acting as the data processor, commits to processing customer data in accordance with applicable data protection regulations and the instructions of the data controller (typically your customers). It addresses key aspects such as data security measures, data breach notification procedures, confidentiality, sub-processing arrangements, and the duration of data processing.
A well-drafted DPA is essential for demonstrating your commitment to protecting customer data and ensuring compliance with data privacy laws. It not only helps build trust with customers but also safeguards your startup from potential legal liabilities related to data handling. DPAs are a fundamental part of responsible data management and a necessity for SaaS startups dealing with customer data. It’s crucial to tailor DPAs to your specific business operations and seek legal guidance to ensure compliance with relevant regulations.
Keep in mind that your DPA is a living and breathing document. As your product and your processes grow you’ll need to update it regularly. This includes documenting the software that you use internally to process data and ensuring that this is kept up to date.
Getting Your Essential Startup Legal Documents In Place
Getting up and running with the essential startup legal documents for you to sell your product is often seen as a process of just getting a bunch of legal templates in place. But it’s not that easy. Templates may not be appropriate for your business or may end up being very heavily negotiated during the sales process. Getting professional legal help is always recommended so that your business is set up for success.