Legal Documents for startups

6 Legal Documents every startup needs.

By: S.W. Haeger

1. Corporate Shareholder Agreement.

If your startup will consist of more than one owner, a shareholder’s agreement, while not a legal requirement, becomes necessary in the sound running and maintenance of your company. A shareholder’s agreement determines how the company is run and how important business decisions will be made. It also determines how investors and/or owners may exit the company, and what happens once they do exit. These are all crucial matters that need to be determined ahead of time to avoid what will otherwise quikly become infighting and discourse that will ultimately lead to failure.

Among the most important issues that should be covered in a shareholder’s agreement is the day to day management and maintenance of the company. Are the investors silent, or will they have responsibilities in the company from the outset? Will the investors run the business, or will a manager be hired to perform this task. How will securities be issued at the outset and in the future, and what entitlement is given to each investor over these securities? Finally, what will be the financial impact on any investor that decides to leave the company? How much notice mucst they give? What rights to the other investors have to the vacated share?

By creating a shareholder’s agreement, the investors will need to sit down together and decide the answers to these questions up front and together in order to save legal fees and headaches in the future.

2. Non-Disclosure Agreements.

Non-disclosure agreements becomes necessary as soon as business conversations of any type begin with those outside of the company, such as another business or a hired freelancer/independent contractor. A non-disclosure needs to be in place with those other persons so as to protect your intellectual property rights, any ideas of the company or its’ employees that may be discussed; or any potential patents or future patents of the company.

A few of the most important issues your non-disclosure agreement needs to cover:

  1. The duration of the non-disclosure agreement;
  2. What shall constitute confidential information;
  3. The manner in which confidential information should be handled;
  4. The owner of the confidential information; and
  5. The time period over which said confidential information Is to be disclosed.

3. Employment Contracts.

It is unfortunate how often new companies bring in employees without a proper employment contract in place. The initial excitement a company feels when bringing on its’ first employees is quickly dashed as that employee becomes a problem and/or distraction the company must deal with when other matters should be far more urgent.

Of utmost importance is the establishment of ownership rights over intellectual property. Having a written agreement in place that will prevent the employee from laying claim to intellectual property developed during the course of employment is vital. Confidentiality provisions are generally important as well so as to keep the internal machinations of your company private and outside of the knowledge or your competition.

4. Intellectual Property Assignment Agreement.

While this document is only going to be necessary in certain specific circumstances, it is of so much importance that we felt compelled to include it among the most important documents. An IP Assignment Agreement is important when a piece of intellectual property developed by one of the investors or initial owners is an important asset of the company. In this particular case you will want it to be clear that said intellectual property is the property of the company and not that of the individual investor.

The IP Assignment Agreement needs to be clear as to what property is being transferred to the company, that the transfer is infinite in duration, and that the shareholder/investor has provided the company with everything necessary for the company to enjoy full and complete ownership of the property. If the shareholder/investor is to be given any type of financial incentive for this transfer, this should be defined in full in the IP Assignment Agreement as well.

5. Terms and Conditions.

This is a more recent form of legal document, but is essential for those businesses with an internet presence, which I suggest should be all newly formed businesses as of 2017. Your website Terms and Conditions define your online relationship with your potential customers, including how your information may be used and viewed online, what type of information you may collect from your online customers, and what rights they have while visiting your website.

A properly drafted Terms and Conditions deals with guarantees made to the customer, how returns and exchanges will be handled, deliveries, competition as well as any disclaimers you need to make. They can also effectively limit liability for any information contained on your website that is submitted by and/or through third parties or any other content contained on your site.

A proper Terms and Conditions should also explain the rules that visitors to your website must follow and give a disclaimer that any information contained on your website is the intellectual property of your company. Make sure that the Terms and Conditions is easy to read and is made available to the consumer well prior to any transaction being completed.

6. Privacy Policy.

While a good privacy policy has only recently become necessary, litigation in the past 5-10 years makes a proper privacy policy crucial. Your privacy policy should clearly disclose what information you collect from your customers and visitors to your website, how that information is stored and the duration for which it is stored, as well as the rights the customer maintains over this information.

Privacy laws in the United States are patchwork at best. Laws can differ wildly from state to state or between Federal and State law, so it is important that to ensure you are in compliance with both Federal laws and those state laws for the states in which you operate. A few states have even begun enacting laws governing all businesses that target customers in their state, such as California. Because the area has become so complex. I would recommend speaking with a legal expert on the issue, and if you intend on purchasing a legal form, make sure it is one that is in compliance with both Federal and State law.

 

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