In the last two months, I’ve received two calls that reminded me that start-up founders, employees, and the self-employed have huge legal issues outside of traditional start-up law.

So, I’ve decided to make a Public Service Announcement:  If you are self-employed or involved in an early-stage start-up, consider the following issues and seek the appropriate professionals to address them if appropriate.

1. LIFE INSURANCE. If you are:

a) an American citizen who is a start-up founder, an early stage start-up employee, or self-employed;

b) not financially independent (Note: you are financially independent *only* if you work because you want to, but you don’t have to, and you won’t have to work anytime in the future, either);

c) and you have dependents;

then you need life insurance. Period.  Unlike many more traditional careers, these groups don’t have any form of pre-negotiated survivor benefit plan. If you are a major financial contributor to your dependents’ needs, then even if you are fully vested into social security, unfortunately, it is almost certain that SS survivor benefits will not be sufficient to support your family if you die.

2.DESIGNATED DECISION MAKERS.  You need a designated decision maker who can manage things for you if you become incapacitated or die.  Yes, thinking about this is not pleasant.  But many of the individuals I work with do not have estate plans and are unmarried.  In the event something happens to them, their next of kin will be involved in all aspects of their life (including their business).  If you are not absolutely certain that every state/country where you have assets, business, contracts, or potential health issues recognizes the person you want as your next-of-kin decision maker, then you *need* to visit an estate planning attorney to figure out what documents are necessary to ensure that the person you want in charge is able to make decisions (either financially, health-wise, or both).  Founders, in addition to seeking input from an estate planning attorney, you should discuss this potential issue with your corporate attorney to understand what provisions already exist in your corporate formation documents regarding exercise of a founder’s voting rights in the event of a Founder’s death or incapacity.

3.  CENTRALIZED DOCUMENT/ACCOUNT MANAGEMENT.  In the event of an emergency, you need one location where your decision maker knows to go that outlines where and how to access all important online and physical bank, investment, credit card, billed accounts, title documents, health documents (advance care directives!), insurance policies, and anything else that may be critical.  The actual rights and responsibilities that your decision maker will have with respect to the information you store varies in each situation (again, see an estate planning attorney), but if you don’t have the information in a location where your decision maker can access it, they will be completely unable to act on your behalf.

4.  HEALTH INSURANCE AND DISABILITY INSURANCE.  The self-employed often struggle with health and disability insurance as it is can be very expensive outside of the guaranteed issue employer market (try large industry organizations or NASE). Some early stage start-ups don’t offer medical insurance due to budget constraints and many early stage start-ups don’t offer disability insurance.  Much like life insurance, if you have dependents, you should seriously consider whether you need one or both of these insurance products before you are working the start-up or self-employed sprint and unable to focus on anything outside of the business’s growth trajectory.

**NOTE:  I do not practice estate planning law, insurance law, or corporate law outside of technology transactions.  This post, like all of my posts, does not contain legal advice and I did not become your lawyer solely because you read it.  It is very possible that your situation is unique and that all of the issues I raised for consideration above do not apply to you.

If there’s one topic that’s guaranteed to make my clients’ eyes glaze over, it’s indemnities. My clients will fight to the death regarding the business points that they believe are important. But, often, by the time we get to Section 18 on page 13, they’re ready to mentally check out of the conference call and leave the lawyers to fight about the legalese.

From a legal fee standpoint, this isn’t a great idea — Lawyers can fight all day about just about anything, but especially about indemnities, because, truly, they’re just risk shifting. There is no “right” or “wrong.”

Just think of an indemnity as insurance, without a premium — Great to have one in your favor, not so great to be offering one to the other party.

When someone says, “You should indemnify us for all claims related to your breach, or your negligence” what they’re really saying is, “I don’t want to have to prove that you were in breach or that you were negligent. If it looks like you might be, I want you to be on the hook. And, I don’t want you to have any defenses or arguments about why it’s not your fault or problem.”

Here’s a hypothetical example:

Startup is running a software as a service and offers access to their service via an API. Big Company wants to wrap the API’s functionality into their product or service and offer it to their end users.

The indemnity issues *really* matter:

1. Who should be on the hook if the end users breach the end user terms of service? (e.g. what if the end users break the law? Shouldn’t that be the end users’ problem? Does it make sense to have one company responsible for all legal costs and damages associated with end users’ actions? If so, which company? Big Company will try to make certain it is Startup.)

2. Who should be on the hook for a patent lawsuit regarding the combination of the API’s functionality with the other side’s functionality? (In the absence of an indemnity, the liability would be shared. But Big Company’s default form will try to make it entirely Startup’s issue.)

3. Who should be on the hook for changes in the law that require changes to the software/service? (Again, this is an ordinary risk of doing business that all companies face. But Big Company will try to push the entirety of this risk and all associated costs on to Startup.)

The biggest issue with an indemnity, however, is that unless drafted narrowly, it will cover *all* claims, regardless of their value. So, if a malicious, false, and/or vindictive claim is filed, the indemnifying party is still on the hook. An indemitor can end up insuring against the defense and settlement of claims filed by the indemnitee’s enemies or folks looking to go after deep pockets for a quick settlement.

As a final risk, many General Liability insurance policies explicitly carve out indemnity obligations from “insured contracts.” I always advise my clients to check with their insurance brokers to find out if they are accepting un-insured liability by taking on an indemnity obligation. At a minimum, the increased premiums required to accept such a clause (if you can get coverage) can be a useful bargaining chip when discussing whether an indemnity is “standard” or “required” or “normal.”

In the last two weeks, I’ve seen a surprising glut of Non-Disclosure Agreements that were exactly the *opposite* of what my clients expected to see.

What to do I mean?

I mean, these NDAs all had express permissions for the receiving party to use or disclose the information they receive in the course of their business. In other words, these contracts had the standard confidentiality obligations one would expect to see in an NDA but then also included some carve-outs. However, the effect of the carve-outs was so big that they turned the NDA on its head.

Essentially, August 2011 has been the month where the big company form Non-Dislcosure Agreements I received morphed into a Permission to Compete With My Client (By Using Their Disclosures) Agreement.

In several cases, given the business realities and the difficulty of getting big company legal time to review my edits, I recommended that my clients refuse to sign and limit their disclosure to only those things they’d feel comfortable disclosing without an NDA.

Thankfully, this approach worked against several large companies. Apparently, the message that’s been conveyed to the random middle/high-level project/product manager at several Fortune 50 Companies is: “Get ’em to sign our terrible form if you can. If not, don’t sign anything, but have a limited meeting anyways.”

This is a shift for me. Historically, my experience with large companies was that they wanted you to sign their form before the meeting, no matter what. Several years ago, however, their forms weren’t draconion permission to compete agreements with free perpetual non-assert clauses (I’m not exaggerating, one form I received included an non-assert clause for all IP rights associated with everything disclosed by my client in connection with the agreement).

Moral of the story? NDAs, while typically boilerplate and uninteresting, can occasionally contain provisions that give up the ghost. My August clients are very happy they were safer rather than sorrier (and several reported back with entertaining tales of embarrassing their business counterparts at the big companies when they pointed out why they just couldn’t sign the new version of Fortune 50 company’s NDA)

I’m in London, finishing up a European vacation with a visit to a couple of clients for work before heading back to Silicon Valley.

Today, one client’s CEO showed me around and introduced me to one of the tech guys. After shaking my hand, one of them immediately enlarged the newest open source license he wanted to get approved for his project:

The Do What the Fuck You Want License.

I had never encountered this license in the past and was a little flabbergasted to encounter it on-site on-screen for immediate approval.

I am happy to report, I managed to maintain some semblance of composure and let them know that for this particular client’s needs, this license was acceptable.

Also, I immediately went back to my hotel and looked up the history, as I couldn’t believe that this license was already on Version 2.0 after only a decade or so… The GPL is only on 3.0 after 23+ years!

Paul Ceglia’s allegations regarding his role in the founding of Facebook are grandiose.

The legal response from the Facebook team is similarly fantastic.

No matter how it plays out — it’s shaping up to be a huge fight and will likely make a great story.  I can’t help but wonder if this scenario might find its way to the big screen as well.