5 things you need for your startup's Terms of Service

Sep 25, 2015 2:32:48 PM

If you have a tech startup, whether you are selling specialty shoes or have a cool new SaaS product, you'll need a good Terms of Service for your website, product or app. Your Terms of Service should be like any other contract you would have with a customer — it should define the business and legal relationship between you and the customer. Here are 5 things that any Terms of Service should have.


Clearly define who you are.

Let's say your company name is AcmeCorp, Inc, and your Saas application is called Acme.io. Plenty of startups would say something like this in their Terms of Service:

This Terms of Service is intended to be a binding legal agreement between you and Acme.io.

A website/domain name can't be a party to a contract...just like you can't enter into a contract with your shoes making them promise not to tear up your feet...that's just silly (unless AcmeCorp, Inc filed a d/b/a for Acme.io).The better practice would be to clearly identify AcmeCorp, Inc as the party to the agreement:

This Terms of Service is intended to be a binding legal agreement between you and AcmeCorp, Inc, a Delaware corporation.  

Without this, someone might claim that by using the website they are doing business with an individual (rather than the company), and that’s a can of worms you would rather avoid upfront.  

Location, Location Location.

Doing business over the web gives you a storefront that is accessible to the world. That's great for business, but not so great if you are getting sued all over the world and you are forced to defend yourself in courts all over the world.

Keep the fight close to home by 1) clearly stating where you operate and 2) including a "forum selection" clause. Those would look something like this:

AcmeCorp, Inc operates the Acme.io Service from its offices in Palo Alto, California, and this Agreement shall be treated as though executed and performed in Palo Alto California, and shall be governed by the laws of California. You submit to the personal jurisdiction of, and agree that any claim or dispute you may have against AcmeCorp must be resolved by, the courts located in Santa Clara County, California.

Clearly define what your customers are getting from you, and what you are getting from them.

This one can be really a bit tricky.  Most of the time, your Terms of Service do not spell out the exact details of the service you are providing to the customer — i.e. price, renewal terms, features. What your Terms of Service should include is a general description of the services similar to this:

“œServices” means the content wizard application provided by AcmeCorp via Acme.io and further described in your Service Plan, and any accompanying or related documentation, source code, executable applications, and other materials made available by AcmeCorp. Any new or modified features added to the Service are also subject to this Agreement.

The “Service Plan” referenced there is what allows you to incorporate pricing, features, etc. into the definition of the services you provide. Service Plans on a website usually look something like this:


Then you could define your Service Plan like this:

 "Service Plan€" means the service plan chosen by you during, or subsequent to, the registration process.

The trick here is making sure that you keep track of what plan they select, and what that plan included at the time they selected it.

Have a plan for modifying your Terms of Service that won’t get them completely thrown out if and when you need them!

This is a big one that you (and your lawyer) might actually get wrong. It has become all too common for businesses to include language like this in their Terms of Service:

We reserve the right to modify our Terms of Service at any time. Your continued use of the Services will constitute your acceptance of the modified Terms of Service.

This is not the way to do it. I repeat, definitely not the way. Sure, it might be convenient to try to force changes down the throats of customers whenever you want, but it simply is not a good practice. The better practice is to indeed give yourself a right to change your Terms of Service at any time, but instead of making it a “take it or leave it” proposition to existing customers, tie to the actual term / renewal terms of the agreement created when they first accept your Terms of Service, and give them reasonable notice of the change. Something like this:

AcmeCorp may modify the terms of this Agreement upon 30 days prior written notice to you. You will have an opportunity to review and accept the modified Agreement. If you fail to accept such modified Agreement, AcmeCorp reserves the right to terminate your access and use of the Service and API upon the termination of your Subscription Term, or next renewal term, as applicable. 

Try to avoid a potential class action by requiring arbitration.

A class action lawsuit is the great equalizer when it comes to a consumer trying to sue a gazillion dollar company. It allows consumers to band together rather than sue a business with resources that seem nearly infinite when compared to a single consumer. No business ever wants to deal with a class action, and the best way to avoid one (besides not doing stuff that gets you sued by lots of people), is to:

1) have customers waive their right to form a class action and 2) require that any legal disputes related to the Services be settled in front of an arbitrator.  

You can learn more about class actions and arbitration provisions here.  


Of course you shouldn't take any of this to be legal advice, there are many other terms and conditions that should go into your Terms of Service, and you really, really, REALLY should consult a lawyer to help you. Also make sure to keep good records regarding pretty much everything to do with your Terms of Service (version, modifications, acceptance data...etc).


If your Terms of Service have you at a loss, giving some TLC in these 5 areas is a good place to start. 

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Brian Powers

Written by Brian Powers

PactSafe CEO & Founder

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