Top 8 Legal Documents Every Startup Should Have
Below, weโve outlined the core eight legal documents for startups that founders need to put into place to avoid costly legal battles down the road.
1. Articles of Incorporation
A common mistake startup founders make is failing to put an adequate business structure in place. Putting up only a sole proprietorship can result in high-income tax bills and legal liabilities for which entrepreneurs are directly responsible. By not filing the Internal Revenue Service (IRS) to form a distinct legal entity for their business, there might be a chance where founders risk losing their savings and, in some exceptional cases, their homes or land.
All options have their pros and cons. For the most general part, startups with multiple shareholdersย should form a C corporation. Businesses that want less tax obligations and want to avoid heftier fees during early growth should consider creating a limited liability company (LLC).
2. Intellectual Property Assignment Agreement
Entrepreneurs, employees, and independent contractors should sign intellectual property assignment agreements at the outset to guarantee that your startup owns its intellectual property assets and prevents any challenges later.
3. Nondisclosure Agreements
A nondisclosure agreement, also known as an โNDAโ, protects your startupโs confidential and private information. An NDA explains what type of information or details is considered confidential, and it also describes how the data can be used or disclosed to others. NDAs are critical to protecting any company information that you donโt want to be released to the public, including product information, financial data, and sales and marketing plans.
NDAs must be only signed by those who have permission to access confidential information, including employees, independent contractors, vendors, potential investors, and many others. A nondisclosure agreement protects all your crucial information against competitors who might steal or copy your product or use the information in their product to gain a competitive edge.
4. All Employee Contracts
Generally, in most states, employees are โat-willโ and can leave their job at any time unless an employment contract (Contractual job) obligates them. Employees in a startup who are critical to the companyโs early success may want to put employment contracts in place to ensure that they have the company for a specified amount mentioned in the contract.
“While time is a precious asset for any startup, founders should prioritize putting these agreements into place to secure their companyโs future.”ย
5. Bylawsย
Every startup wants a particular set of working guidelines or ideas that govern that area. Bylaws should establish the companyโs internal rules like settling disputes, selecting leadership, and determining shareholdersโ rights and powers. Bylaws can embrace, however, usually are not restricted to voting rights to pick management, the election of board members, or taking approvals and different inside functions of the organization.
6. Operating Agreement (Founders Agreement)
To avoid any conflict among the founding parties, all co-founders should sign a comprehensive operating agreement. The agreement should define the foundersโ relationship, including the expectation that all work will belong to some entity present and in the future- outline a necessary communication and conflict-resolution clause to help prevent disputes.
7. Shareholder agreementsย
Once your startup is ready to take one on one with private investments, a Shareholderโs Agreement needs to be put in place to determine these shareholdersโ rights and their ability to exercise these rights. Like spousal support after remarriage, these agreements are incredibly important as they define the relationship between a companyโs shareholders and are invaluable if a co-founder decides to leave.
8. Trademarkย
Trademark registration and reputation may help strengthen your model, which is sweet. The drawback is that while you register with the trademark workplace, everybody with an identical structure is alerted and starts to make an objection. Therefore, chances are youโll discover that all of a sudden, individuals who wouldnโt have in any other case have been focused on what you might be doing, begin being attentive to explicit trademarks.
Source: https://unboxingstartups.com/blog/top-8-legal-documents-every-startup-should-have/
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