What are the types of contracts in the IT business?

Contracts with employees

• Service Agreement (SA). Signing contracts is a standard hiring process required by labor law. This type should establish the employee’s legal consent to start work and regulate working conditions, wages, work schedules, holidays, rules of internal regulation, and other essential aspects.
• Non-Disclosure Agreement (NDA). The non-disclosure restriction ensures the confidentiality and protection of the company’s trade secrets, technological developments, competitive advantage, and other information. The peculiarity of this contract is to provide a list of things that should be kept from third parties to establish responsibility and terms of action that will be acceptable to you.
• Non-Compete Agreement (NCA). An agreement that prohibits employees or contractors from engaging in competitive activities for a certain period and within certain geographic limits after the termination of cooperation. It is usually used to maintain the company’s competitive advantage using acquired knowledge and project experience. The difficulty lies in that the Ukrainian Labor Code does not provide for similar restrictions, and today, no judicial practice would regulate this contract.
• Stock Option Agreement (SOA). It is a contract between a company and its employees, giving the latter the right to purchase company shares at a specific price during a certain period and subject to achieving specific development goals. It is usually used as compensation for the time invested because, at the beginning of the activity, the company may not have funds for wages.

Agreements with counterparties

• Software Development Agreement (SDA). This is a contract between the software developer and the client in which the parties fix the final results that need to be achieved, the terms by which everything needs to be done, and the terms of payment. A properly drafted contract must identify the IP objects and correctly and fully transfer the rights to the created objects.
• Non-Solicitation Agreement (NSA). This contract should protect against other companies’ attempts to lure employees or customers. It is most often used when employees are outstaffed by other companies. Because, in fact, with this form of relationship, another company begins to control your team’s activities, and this form of contract allows you to regulate the responsibility for hunting or the terms of buyout of this or that employee.
• Software Licensing Agreement (SLA). It is used between the software product owner (licensor) and the user (licensee) regarding the right to use the software under certain conditions. The agreement may contain restrictions on the use of the software by territory, modification, transfer to third parties, frequency of payments, and terms of license termination, including rules for removing the program and returning equipment.
• Equipment Lease Agreement (ELA). Used to rent equipment such as servers, computers, and peripherals from a vendor to a user, allowing temporary use of the equipment without the need to purchase it. It may include conditions for periodic software updates, responsibility for maintenance and repair of the equipment used, and responsibility for insuring the equipment in the event of loss or damage.
• Maintenance and Support Agreement. An agreement that defines the terms and scope of software support services after its delivery. It may include technical support, updates, bug fixes, etc.

This section provides only a tiny part of those contracts, which includes possible stages of relations with counterparties. Each contract must serve a specific purpose and depends on the specifics of the activity, for example:

• website development (Website Development Agreement);
• provision of cloud services (Cloud Services Agreement);
• provision of consulting services (Consulting Services Agreement);
• provision of cyber security services (Cybersecurity Services Agreement) and others.

Contracts for investment attraction

Attracting investments is one of the development activities of a startup. Depending on a particular stage of project development, the field of activity, the presence of an already established company, or holding, there may be different options for action.

Simple Agreement for Future Equity (SAFE)

This type of contract has been used in the startup industry to attract investment for more than ten years. Its feature allows investors to invest in a startup without complicated legal procedures. The company’s lack of a specific value when signing the contract makes the investment process more flexible than traditional contracts for the sale of shares.

It is assumed that the investor will receive a certain number of shares in the future if certain events occur, such as a financing round, an IPO, etc. At the same time, the possibility of attracting small investments from many investors simplifies obtaining the necessary budgets for the project.

A SAFE may contain various protections for investors, such as requirements for a minimum valuation of the company during the next round of financing, no dilution of fate, and equal conditions for all investors. There are many options and types of SAFEs, so that the terms may vary depending on the specific situation and agreements between the parties.

Simple Agreement for Future Tokens (SAFT)

In essence, this contract is similar to the SAFE agreement, but it is used in the context of the blockchain industry to attract investment in projects that issue tokens instead of shares. The basic idea remains the same: an investor invests money in a company under certain conditions to receive tokens in the future.

The terms of the SAFT agreement may specify how and when the tokens will be distributed to investors, how functional the network will be, and the legal status of the tokens that are reflected under the digital asset laws of a particular jurisdiction. In addition, the terms of the SAFT define the rights and obligations of both investors and the project team, when the tokens will be distributed, and restrictions on trading the tokens that the investor receives until a specific time or particular event.

Shareholders’ agreement (SHA)

The main idea is to ensure the legal framework, protect the interests of all shareholders, and minimize potential conflicts. They are used in companies with multiple shareholders to establish a clear framework for decision-making, ownership structure, governance, and dispute resolution. The agreement may define the roles and responsibilities of shareholders and directors, including their involvement in day-to-day operations, strategic decisions, and company management.

Most companies prescribe the prevailing rights of existing shareholders regarding the sale of existing shares to third parties, exit strategies for shareholders, rules for distributing dividends among shareholders, dispute resolution mechanisms, confidentiality, and non-competition. When signing, we advise you to discuss what happens during a deadlock during decision-making, the procedure for making changes to the agreement, and the conditions under which the contract can be terminated.

Agreements for the site

Privacy notice, also known as Privacy policy. It must contain privacy notices and tell users about data protection, how you collect, use, and process personal data of site users, and when providing services.

Interestingly, many people need to correct the name of these policies. According to the definition by the International Association of Privacy Professionals (IAPP), privacy policies are internal documents that tell your employees how to protect customer data, and privacy notices are external documents that inform visitors about how personal data is used (in the future M PD) and their privacy rights.

With the adoption of the GDPR personal data protection regulation in 2016, companies operating in the territory of the law are required to comply with the requirements. These requirements require transparency in processing, obtaining direct consent from users explaining their rights to them and providing individuals with information about their data processing activities.

To simplify the general regulation, companies must collect and store as little PD as possible to conduct business. In addition, there are also sensitive PDs (racial, political, religious, health data, etc.), which may be subject to unique control by PD regulators.

Terms and Conditions (T&C), also known as Terms of Service (ToS) or Terms of Use (ToU). These legal agreements outline the rules, regulations, and guidelines for using a product, service, or platform provided by a company, clarifying what users can expect from the service and what the company expects from them in return.

Depending on the different fields of activity, these agreements may include:

• rules related to user behavior;
• provisions on intellectual property rights;
• limitation of liability for damages or undesirable results;
• directions for applying for legal protection;
• termination of the agreement;
• updates and changes, etc.

These documents are critical to setting clear expectations, minimizing legal risks, and protecting both users and the company. They ensure that users understand the rules and restrictions of using a product or service and establish a legal basis for the relationship between the parties involved.

Conclusions

The contracts listed above are only a few documents used in various IT business models. The specific type of contract is chosen depending on the needs, specifics of the project, and the wishes of each of the parties during cooperation.

At the same time, contracts in the IT field have characteristics that must be considered during their preparation. Because many aspects can be unpredictable. Creating a contract in IT requires a deep understanding of technical and legal aspects, flexibility, and the ability to consider changes during project implementation.

Only an individual, personalized approach to creating contracts can list all the features, complete the prerequisites for legal protection of your activity, and secure your agreements with the other party in writing.

Published by AIN

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