Software as a Service agreement: How-to guide

A SaaS agreement is an integral part of any company providing SaaS services. A Software as a Service (SaaS) agreement or SaaS contract is created when a software service provider agrees to offer their services to a customer. This agreement defines:

• The terms and conditions regarding the end user's control and access to the software
• The subscription services
• The payment model to the customers
• The restrictions on the use of product/service by the service provider
• Steps to be taken and the course of action in the event of a data breach
• Legal obligations as a user
• Termination policy upon any dispute

SaaS agreements include legal terms, and drafting an all-inclusive agreement may require technical expertise. In this guide, we will discuss the important components of SaaS agreements, and the benefits of having an agreement template to draft a SaaS agreement.

What are the advantages of having SaaS agreements?

A SaaS agreement details the obligations and performance goals of involved parties. A well-structured SaaS agreement is beneficial for a software company as it assists all parties in finding common ground in various matters. Here are some advantages:

• Presenting legal matters in a professional manner
• Protecting the rights of the company (as well as customers involved in the SaaS agreement)
• Accelerating the negotiation process
• Identifying potential issues
• Outlining resolutions clearly    

What are the essential components of a SaaS agreement?

While SaaS agreements vary according to your business and the services provided, the following components are crucial to any SaaS agreement. As a SaaS agreement includes legal and regulatory considerations, please consult an attorney for the proper assistance to ensure your Software as a Service (SaaS) agreement complies with local and state regulations.

Introduction

In this part of the agreement, briefly introduce your company, customer details, respective addresses, date, and subscription plan details. 

Terms of the agreement

This section describes the guidelines on how the end user should use the services. Here are the different customer and service provider obligations: 

Definitions 

Some end-users may need assistance to comprehend a SaaS agreement. To simplify things, it's recommended to explain the definitions of the terminologies used in the agreement. For instance, you may define the terms like “Schedule,” “Subscription Term,” “Order,” etc.

License grant

In this section, mention the license rights of the end users for the services provided as per the agreement.

Customer responsibilities

This section lists the responsibilities of the customer. For instance, customers should agree to the applicable law, follow the usage guidelines, and adhere to the stipulation mentioned in the service license.

Ownership and restrictions

This section describes how the customer should handle intellectual property rights and manage confidential information. It also mentions each party's ownership and restrictions on the services.

Orders and payments

In this section, inform the users about the payments. This may include:

• The amount the customers have to pay for the ordered services, including a payment schedule and the accepted mode of payment.
• It also addresses the frequency of the billing cycle as per the SaaS subscription. Generally, SaaS companies offer monthly, annual, semi-annual, multi-year billings, or one-time subscription options.
• The fees for the SaaS product's maintenance, upgrades, and other support services.

Term and termination

Sometimes, an agreement can end before the services have been completed. This section specifies the conditions under which the contract remains valid and when it can be mutually terminated.

Service level agreement

SaaS service-level agreements, or SLAs, define the services provided by a company and how its customers should utilize or access them. In this section, mention the terms and conditions for hosting the SaaS software, the support and maintenance services required, and any exclusions for which the SaaS provider should not be obligated.

Warranties

A warranty is a promise or guarantee made by the service provider about the performance or quality of the software services provided. In this section, mention the warranty and clearly define your responsibility as a service provider.

Limitations of liability

A limitation of liability agreement shields SaaS providers from risk by contractually prohibiting end users/customers from holding them responsible for specific damages. In this section, mention the extent of damages for which you may be accountable as a SaaS vendor under the agreement. 

Indemnification

Indemnification is a party's promise not to hold another party legally accountable for possible breaches or damages in an agreement. This section details what kind of breach or loss the service contract does not cover.

Confidentiality

This section states the software company's surety to keep the customer's data, trade secrets, confidential information, and other personal data private and not divulge any details to any third parties. The software service provider also acknowledges that the customer/client information will only be utilized for business needs. The customer also promises to retain all the outlined company-related service data and other confidential information within their business, even after the termination of the SaaS agreement.   

Arbitration

Arbitration is like an out-of-court dispute resolution where an impartial third party, known as an arbitrator, hears evidence and provides a ruling. This section states that any disputes between the parties resulting from or connected to the SaaS contracts are resolved by this provision.

Notice

This section mentions how a written notice should be sent to either party.

Force majeure

This section releases a party from its obligations if its performance is made impossible by an event beyond its control despite its best efforts (e.g., fire, flood, earthquake, war, and more).

Governing law

In this section, the involved parties agree to interpret the document according to the relevant state laws.

Entire agreement

This clause of the contract signifies the complete agreement between the parties involved. Any changes, such as adding or deleting terms, shall be written and signed by both parties.

Acceptance and signatures

This section establishes that the parties involved in the SaaS contract agree with the conditions mentioned in the document and readily accept and sign it.  

Use LegalZoom's SaaS agreement template

SaaS agreements provide an accountable framework for your services to potential customers. To attract potential clients, a SaaS agreement must stand out and convey the right message.

LegalZoom offers a SaaS agreement template to help you design engaging agreements quickly and efficiently with a well-defined structure. Answer some simple questions to create your agreement, and you can download it for free as a .pdf document. Keep a .pdf copy of your SaaS agreement on your device and have it ready to print whenever required.

Drafting the agreement becomes easy with a template with clearly defined SaaS agreement terms. Here are the benefits of using a template:

1. Ensures consistency 

It's common for SaaS organizations to use separate agreements to meet different customer requirements. However, using LegalZoom’s SaaS agreement template helps standardize communications and reduces the risk of errors.

2. Easy to customize  

A SaaS agreement contains specific components that may need to be edited whenever a new customer is onboarded or when the deal has varying technical requirements. These changes may involve sections outlining governing laws, pricing information, the number of arbitrators involved, or others. LegalZoom templates are customizable and easy to use, allowing users to edit each document page to meet their needs.

LegalZoom's form templates have advanced features like a rich editor with a simple drag-and-drop action to personalize the agreement according to customer requirements. The eSignature feature enables parties to affix their signatures online from anywhere in the world. You can get the editor and eSignature tools for an affordable price!

Frequently asked questions

What is a Software as a Service agreement?

A Software as a Service (SaaS) agreement is an agreement between a SaaS provider and its customers. In this document, a company specifies the terms and conditions to be followed by the end user. The agreement also provides guidelines on managing subscriptions and payments. 

What is a SaaS service level agreement?

SaaS service-level agreements (SLAs) define the services a software company provides and how its customers should utilize or access them. They may include the terms and conditions for hosting the SaaS product, support, maintenance, intellectual property rights (IPR), and ownership rights. 

What is the difference between a SaaS and a license agreement?

There are many differences between SaaS and license agreements. However, the most important structural difference is the delivery model.

A SaaS agreement is software accessible on a hosted platform in an intangible form where the data is stored and protected by the SaaS provider. 

License agreement software is stored within the end user's system or available in a physical form such as CD-Roms, hard disks, or DVDs.

What should I look for in a SaaS agreement?

In a SaaS agreement, you should look for the software's usage, billing and payment details, data privacy and confidentiality clauses, intellectual property rights and ownership, and renewal and termination policies.