Contract review: A final checklist before you sign. Legal cheat sheet for business. Tips for new general counsel. Patent apps at lower cost. Privacy policy sample. Attorney-client engagement agreement form. Why we lawyers can seem like such weasels. This site rocks the Classic Responsive Skin for Thesis. Enterprise licenses versus software subscriptions explained by Dell C. Shall versus will: A sales-related reason to use the latter Contract drafting maven Ken Adams writes again about shall versus will in contracts.
The critical step is to determine whether a contract is a license or service contract. If the contract is a service contract, the company will expense most costs. If the contract is a license, the company may capitalize, and subsequently amortize, the cost of the license, installation and testing, with costs such as training and maintenance expensed as incurred. A company should expense internal and external costs incurred during the preliminary project stage.
Examples of activities in this stage include the identification of performance criteria and requirements of the new software, the interview and selection of vendors who may be able to provide or assist in providing the new software, and the selection of consultants to assist in the development or installation of the software. Training and data conversion costs, except in limited circumstances, should be also be expensed. A company should capitalize costs incurred for computer software developed or obtained for internal use during the application development stage.
A company enters the application development stage when 1 the preliminary project stage is complete and 2 management has committed to funding the software project and it is probable that the project will be completed and installed.
Management will need to closely evaluate the timing and nature of costs incurred when beginning to evaluate changes in its internally-used software. How do you decide on capitalizing the cost of software development? There are a number of factors to consider when deciding whether or when to capitalize the cost of developing software, including:.
How should support and maintenance be handled if the support is bundled into the software cost? In a bundled transaction where there are several identifiable deliverables like the software, support, updates, etc. Take the following example:. Would you handle the capitalized costs for software the same for book and tax? Is this similar to what you would do with software and internally developed software? Both tax and GAAP rules require you to segregate and classify costs depending on the stage of the software implementation at which the company incurs the cost.
The IRS issued Rev. This is similar to GAAP treatment where certain costs should be capitalized and depreciated or amortized over their useful life and others should be a current expense. Can an organization purchase a three-year SaaS license agreement and amortize this cost over the course of three years? Yes, vendors will often times offer "discounts" for multi-year purchases and upfront payment. Amortizing the cost over a three year period will allow organizations to normalize these costs over the same period, rather than have a large spike in expense to cover the agreement.
How do you expense a license cost over the course of the agreement? The cost of the license would need to be capitalized and amortized over the license agreement length. The annual amortization expense would represent whatever portion of your license is covered by a month period. The last thing you want is for one of your customers to attempt to sue you because the device they tried to install it on crashed after installation.
By limiting your liability, you are essentially preventing them from suing you because they agreed to your terms before they gained access to even download it. However, make sure the liability clause is fair to both parties.
It can allow you to terminate use at any time with no problems — There should be a portion of the agreement that states that you can revoke licenses at any time. This also gives you the freedom to do so for any reason. Not only can you terminate them, but you can also suspend them if you need to. This is part of being able to maintain complete control over the software at all times.
If you do have to revoke a license and your customers try to start a dispute , all you will need to do is refer them to this clause. What Software License Agreements Cover. There are four main sections of software license agreements and each one covers different information that is key to the execution of the agreement, as follows: General information — In this section, you will find information about when the agreement will go into effect, how long the terms of the agreement will be active for, and the type of agreement.
While this is very general information, it is important because it sets the tone for the entire agreement. Parties involved — This section is important because it defines who the parties are that are entering into the agreement. It will not only detail your company as the one offering the license, but will also include the details of the person or company that is purchasing the license.
You will need to enter in their full name as well as their address and other contact information. You will also need to define whether it is an individual or a company. This information will need to be provided for both parties. Terms of the agreement — In this section, you will find all of the terms of the agreement. This includes the price to be paid for the license, which you can define as a flat fee or a flat fee with yearly maintenance fees.
You will also include information about whether you will be including the code along with the license and if it is a site license. A site license is another option that will allow your customer to use the software on more than one computer but only at one location. This section will also include some information about maintenance, support, or refunds that will or will not be offered by your company through the agreement. Fine details — This section is the one that you will use to detail any specifics that are not covered by the other sections of the software license agreement.
These terms tend to be more specific to your situation instead of broadly expected terms. Also in this section will be the location for signatures and dates. You can also add in the requirement to have it notarized if you wish to do so. Important Clauses of Software License Agreements. Non-exclusivity — If you want to license your software to other companies, you will want to make sure that the software license agreement does not leave out a clause that details that the rights are non-exclusive.
This will allow you to license your software to other parties so you can continue to make a profit from it. Non-transferability — This is a clause that you will want to include if you are not allowing the license to be transferred to another party. You do not want the license to transfer to another person or business because that will essentially take a customer away from you.
That is the main reason why you will want this clause.
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