4 Vital Legal Agreements All Startups Should Have

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4 Vital Legal Agreements All Startups Should Have

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When getting a business to take off, one common mistake is that business owners fail to establish a solid legal foundation to protect their company from situations and circumstances that could be deadly. The most effective and efficient way to provide this legal bedrock is by putting a set of key legal agreements in place. Gleaned from years of business experience and advice from seasoned and highly successful entrepreneurs, we’ve outlined the core four legal documents that a company’s founders should put into place as soon as your business “idea” evolves into a reality. 

1. Business Entity Agreements - When starting a business, it is crucial to select the proper business entity structure in order to maximize tax savings and minimize personal liability. Some of the more popular entity structures include sole proprietorship, general and limited partnerships, C corporations, S corporations, and limited liability companies (LLC or even an LLC taxed as an S-Corporation). As soon as you choose the most advantageous structure, you should draft the proper entity agreements to lay the groundwork for how the business will be governed and operated. Different entity structures require different types of agreements. For example, C corporations require corporate bylaws, while LLCs use an operating agreement. These agreements are legal documents that define each shareholder or member’s rights and responsibilities, along with establishing the necessary provisions for running the company, both on a daily basis and in the event one person dies or becomes incapacitated- as well as if the company dissolves. Moreover, these agreements also outline how business communications will be handled, along with how disputes will be handled. You may also have a shareholder’s agreement or a partnership agreement, if there are multiple owners of the business, where you want to further define the relationship among the owners. To avoid any conflicts, these agreements should be created and signed by all parties as soon as the company is launched. As your Creative Business Lawyer, we can advise you on the entity structure that’s best for your business as well as draft entity agreements to ensure maximum protection.
2. Intellectual Property Assignment Agreements- When launching a new business, you should make sure that all of the intellectual property (IP) brought into the company by its founders before startup, as well as any IP that’s subsequently created by owners and/or employees once the business is operational, is owned by the company, with the individual not having any ownership. Transfer of IP ownership from individual to the company is done using intellectual property assignment agreements. These agreements “assign” the company with complete ownership rights to all intellectual property assets: patents, trademarks, and copyrights, are used to conduct business. Such agreements are typically required by most venture capital investors, and they help protect the company from competitors and/or trolls looking to steal your ideas or products. As your Creative Business Lawyer, we can help you draft IP assignment agreements, so you can retain total control of all IP assets that your business relies on to operate and grow.
3. Employee Contracts and Offer Letters- Unless your plan is to run the company by yourself, you need to create comprehensive employment contracts and offer letters before hiring new employees. These agreements clearly lay out the terms and conditions of employment, so your team will understand exactly what’s expected from them. Employees should be required to sign these documents, with evidence that both parties are aware of the employment relationship’s scope and conditions. Employment contracts should also include any non-disclosure agreements (NDA) and/or non-compete agreements you require to ensure your company’s trade secrets and/or proprietary systems and products won’t fall into the wrong hands.
4. Sales and Service Contracts- If your company sells products or provides professional services, you should have legal agreements in place to clearly lay out the rights and responsibilities of both the business and its customers. Sales contracts typically lay out the key elements such as, price, payment and credit terms, tax responsibilities, warranties, and liability limitations for the sale of products and other goods. Service contracts, on the other hand, explain the fees, terms, and conditions under which your company provides services, along with spelling out the responsibilities and liabilities of each party. Ideally, service contracts should offer your company maximum flexibility for delivering the services, while also limiting its liability. Be sure the contract not only covers the traditional terms listed above, but also any unforeseen events or circumstances that may occur.

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