So, you have a great idea, you see profit potential, and you’ve found a person or people with whom you can collaborate to make this idea a reality that you can scale into a viable business.
Regardless of the type of business you run, having the right contracts in place is critical to success. But what kind of contracts do you need to ensure that your company runs smoothly and that it can meet consumer demands as well as internal growth targets?
Before you begin building your start-up, here are some important legal documents you should have:
1. Operating or Shareholder’s Agreement
If you’re starting a firm with one or more partners, a shareholder or operational agreement is essential.
This legal document should be prepared at the start of the business lifecycle. Although there isn’t a set format for an operating agreement, there are some key clauses that your contract needs to have.
Firstly, your contract must spell out each shareholder’s obligations and ownership ratio. In the instance that one of the partners decides to quit the business, your shareholder’s agreement should include and outline their exit strategy and the process for selling or transferring their interest to third parties.
Anticipating disagreements between the partners, your operating agreement should detail the process for resolving them. Additionally, it can describe the conditions that might cause the firm to dissolve as well as how its assets would be distributed in such a case.
2. Employment Agreement
When you’re prepared to begin hiring staff, you’ll need an employment or independent contractor contract to ensure all parties involved know what is expected of them.
This contract details the positions or tasks of your new hires inside the organisation as well as their pay, including salary and benefits. This improves your working relationship with new hires and spells out in detail the duties and expectations of both the employees and your start-up company.
An employment contract might differ from company to company or even from employee to employee, much like the founder’s contract.
Employment contracts can shield your start-up from potential legal claims made by former workers and contractors.
3. Confidentiality or Non-Disclosure Agreement
A non-disclosure or confidentiality agreement is a requirement for all enterprises, new and old. This contract guarantees that everyone associated with your firm won’t divulge or share sensitive information with third parties.
Your client contact information, marketing plans, details about new products, software code, and other information that offers you a competitive edge in the market are some crucial details to keep private.
An NDA should be signed by anyone with whom you discuss sensitive information. These could be your staff, suppliers and manufacturers, shareholders, board members, vendors, potential investors, and others. A non-disclosure agreement guarantees that the signees understand that they should not leak or divulge any confidential information after they’ve signed it.
4. Intellectual Property Assignment Agreements
A contract for the assignment of intellectual property stipulates that your start-up will be the owner of any innovations, discoveries, ideas, and work products made by your staff. Due to the fact that independent contractors often work with many businesses simultaneously, this is extremely important when working with them.
After signing, the employees should give your start-up ownership of their creations and goods. Additionally, they must inform you of any concepts, items, or innovations developed while working for you.
By granting your start-up complete intellectual property rights, no one can successfully assert ownership of the invention or product.
5. An Investment Agreement
You’ll need to solicit investment funds from investors as your firm expands. These financiers may be present stockholders, outside investors, or new investors.
Drafting an investment agreement is essential to prevent disagreements because the new investor will have ownership rights in your firm.
The terms and conditions for your new investor are spelled out in detail in this legal agreement. This covers the ability to buy additional shares, restrictions on the transfer of shares, and much more.
6. Terms and Conditions
Your terms and conditions define how you do business. They specify how your products and services will be delivered, your cancellation and renewal policies, how and when you will invoice, and a variety of other details. You’d be surprised how many businesses don’t keep their terms and conditions up-to-date or rely on examples downloaded from the Internet that aren’t tailored to their specific needs, which can lead to problems down the road.
What are the risks of not having legally binding contracts in place?
Without the necessary written contracts, your company is vulnerable to disputes and potential litigation. These are not only costly in terms of money, but they also divert critical resources away from achieving your goals and objectives.
There is no legal obligation for your suppliers to deliver essential supplies on time if you do not have agreements with them, which may result in you being unable to fill orders. In the case of Shareholder and Partnership Agreements, failure to have the former where there is an even number of shareholder votes means a deadlock situation. Without a Partnership Agreement, the partnership may have to be dissolved and the business closed if one of the partners decides to resign.
In conclusion
There are several mistakes that founders frequently make in the early stages. It may be exciting to begin developing intellectual property or a business, but the legal bases must be covered to avoid disputes.
Although you can download many essential business contracts from the Internet, you should consider whether the risk of not getting agreements tailored to your specific needs is worth it. Furthermore, if you have a contract to sign, chances are the other party is seeking professional legal advice, so you must protect your interests.
Professional legal counsel is a smart investment. Good Commercial or Corporate Lawyers will ask you questions about your company and market sector and will advise you on many aspects of your contracts that you may not have considered. Furthermore, we will draft the contract according to your specifications, providing you with additional protection against potential disputes and legal claims.
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: info@silvesterlegal.com.
