Author: Adv. Pragati B.
Entrepreneurs are notorious for making calculated bets in order to increase their chances of success. Entrepreneurs use startups as a stage to demonstrate their talents and willingness to take risks to the public. However, one should make sure they have all the crucial legal documentation for startups that each new firm needs to avoid getting themselves into legal trouble.
During the early stages of a company’s development, founders frequently make mistakes. While it may be tempting to dive into your startup’s vision and begin turning your concept into reality, founders must first consider their legal obligations.
Here are the top 10 legal documents that every firm should have to avoid future legal issues:
Your brand can become stronger with a name, which is advantageous. The drawback is that everyone with a name that sounds similar is notified and given the opportunity to object when you register with the trademark office. As a result, you might find that suddenly people who wouldn’t have otherwise been interested in what you are doing start paying attention to a particular trademark.
2. Articles of Association/Incorporation
Failure to establish the appropriate corporate structure is a common error made by most business founders. Starting a business as a sole proprietorship alone might leave founders personally liable for significant tax liabilities and legal obligations. Founders run the risk of losing their funds and, in some extreme situations, their houses if they don’t file with the Internal Revenue Service to establish a separate legal company for their business. While each option has advantages and disadvantages, in general, a company with several shareholders should form a corporation. Companies should be formed by businesses who desire lower tax requirements and who wish to avoid paying higher fees during the early stages of growth.
3. A non-disclosure agreement (NDA)
The first document you should ask for when working with any customer or investor is a non-disclosure agreement. These business documents make sure that both your company’s and the other party’s privacy is maintained. NDA papers are a useful tool to keep the reins tight on your personnel as well as potential consumers or clients. NDAs defend the ideas of your founders and workers as well as your intellectual property rights, protecting your startup.
The following should be included in an NDA:
What constitutes confidential information, how should it be managed, who owns it (the company), when it will be shared, and when secrecy will be maintained are all covered by employee contracts and offer letters.
4. Employee contracts and offer letters
It is essential to establishing your company for success. the justifications for why, as your business expands, you should make sure that each new hire is covered by appropriate contracts. As a young company with little initial human resource capacity, it might not appear crucial. However, it will go a long way toward ensuring that your staff members are aware of your company’s values and what is expected of them as a resource.
They should make it quite obvious that:
• Employment terms and conditions (e.g., Compensation, role responsibilities, working hours and grounds for termination, Expectations, obligations, required commitments, share vesting, reporting structure, intellectual property ownership of work, and company policies (e.g., Vacation days, paid time off the structure, dress code)
5. Shareholder’s Agreement
A shareholder’s agreement must be set up whenever your business is prepared to proceed with private investments by people or corporations, as the case may be. One of the most important beginning documents, it aids in establishing the obligations and rights of these owners as well as their capacity to perform those obligations. These agreements are crucial because they specify how a firm’s shareholders should interact with one another and are crucial in the event that a co-founder decides to quit the company.
Every firm need a specific set of operating guidelines or principles to set the tone for that area. These regulations are spelled forth in byelaws. They make sure that every startup runs efficiently and correctly and give everyone a voice in how the startup operates. Bylaws may address, among other things, the right to vote to choose the organization’s leadership, the election of board members, the need for approvals, and other internal operations.
7. Intellectual Property assignment agreements
For most businesses, intellectual property and strong beliefs are the perfect combination for success. Many startups, however, fail to protect their intellectual property rights. Businesses also rely heavily on intellectual property because the company’s portfolio assessment is what sells it to credible investors. It is critical that you have complete ownership of your intellectual property.
There are two types of Intellectual Property agreements to take into consideration:
• A shareholder and a startup enter into a technological assignment agreement. The shareholder assigns their intellectual property to the company here. These are the intellectual properties of individuals prior to the formation of the company. Invention Assignment Agreements are useful when a company’s employees create an innovative product or service. In this particular case, invention assignment agreements ensure that the company owns all rights to the IP portfolio.
• An Intellectual Property assignment agreement could be one of the most important legal business documents that determines whether your company can attract the necessary investments to grow. This is especially true for technology companies because investors and venture capital firms frequently evaluate the value of your IP portfolio.
8. Founder’s Agreement
When there are multiple founders or founding parties in a business, they must sign an agreement that defines the working coordination of all parties and form outlines to define boundaries. Its purpose is to avoid future conflicts. Essentially, all co-founders of a startup should sign a comprehensive operating agreement to avoid any disputes among the founding parties. The agreement should describe the founders’ relationship, provide the likelihood that all future work will belong to some entity, and outline a basic communication and conflict-resolution clause that can help prevent disputes.
Most growing businesses have (or should have) a website to market their startup and its products. An Agreement, which is intended to be an agreement between the Web site owner and the site’s users and any buyers of goods or services from the site, is essential to these Web sites.
10. Business Plan
Failure to check on putting in place a proper business plan is a common mistake made by businesses. Things like incorporating a private limited company or LLP and not establishing sole ownership can cost entrepreneurs a lot of money in terms of income tax returns, personal savings, and property.
These business documents are not a guarantee of success in your ventures. Nonetheless, evidence of your commitment to taking your startup to new heights through proper planning. It is absolutely necessary to put some effort into completing the legal formalities in order to have a brighter future as a company.