7 Legal documents every startup should have
Wednesday May 29, 2019,
4 min Read
Entrepreneurs are known to gamble with calculated risks as a recipe to success. Startups are a playground for entrepreneurs to showcase their bubbling skills and risk-taking abilities to the world. But one should ensure that they don't end up in legal soup by missing out on any of the important legal documents that are required by every new startup.
Here are the top 7 legal documents you must possess as a new startup to stay away from legal troubles down the road:
Non-disclosure agreement (NDA)
A Non-Disclosure Agreement is the first piece of paper that you need to reach out for when dealing with any investor or client. These documents ensure that the confidentiality of your company, as well as that of the other party, remains protected.
NDA papers are not limited just to potential customers or clients but are also a viable asset to keep the reign tight on your employees. This will safeguard any potential leaks to outside sources.
Employee contracts and offer letters
What is a company without its employees,? They are the most important element of your business. That is exactly why you need to ensure proper contracts for each new addition to your organization as you grow. It may not seem important as a startup with limited initial capacity. But it will go a long way in making your employees understand their values and expectations of the company from them as an asset. Every such document should contain:
· Company rules and policies
· Terms of employment including compensation, working hours, conditions of termination, etc.
· Ownership of work
Once your startup is ready to take the plunge with private investments, a Shareholder's Agreement needs to be put in place so as to determine the rights of these shareholders and their ability to exercise these rights. These agreements, like spousal support after remarriage, are extremely crucial as they define the relationship between the shareholders of a particular company and are invaluable in case a co-founder decides to leave.
Every organization needs a definite set of working rules or principles that govern that space. Bylaws act as those set of rules. They ensure that every startup functions smoothly with precision and gives voice to everyone involved in the startup's working. Bylaws can include but are not limited to voting rights to select leadership, the election of board members or taking approvals as well as other internal functioning.
Intellectual Property assignment agreements
For most startups, Intellectual Property and strong beliefs constitute the perfect recipe to success. However, many startups forget to secure these Intellectual Property rights. Startups also bank heavily on intellectual property as their portfolio assessment is what sells the company to probable investors. Having complete ownership of your IPs is of utmost importance. There are two types of IP agreements to take into consideration:
Technological Assignment Agreements are made between a shareholder and the company. Here the shareholder assigns their intellectual property to their company. These consist of the intellectual property of individuals before the formation of the company.
Invention Assignment Agreements are relevant when there is a new product or service created by a company's employees. Invention Assignment Agreements ensure that the company owns all rights of the IP portfolio in this case.
In case of startups with multiple founders or founding parties, it becomes imperative for them to sign an agreement that defines the working relationship of all parties and form outlines to define boundaries that would prevent any disputes in the future.
A common mistake committed by new startups is the failure to check on putting up a proper business plan in place. Things, like setting sole ownership and not setting up a separate legal business image, can cost entrepreneurs huge losses in terms of income tax returns and personal savings and property.
While these legal documents are no sure shot recipe to success in your ventures, they are, nevertheless, a testament to your dedication to taking your startup to new heights with proper preparation. So put some effort into getting the legal formalities out of the way for a brighter future as a company.